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Our seminar today is designed to raise awareness of a trend we've identified with real estate salespersons and agents and to provide some education and assistance to help you and your accountant get your tax returns right.
Throughout this seminar we will be referring to real estate salespersons and agents collectively as real estate agents.
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What the matrix highlights is that a large portion of real estate agents have a relatively low expense to income ratio.
These are in the green and yellow cells. However it also highlights a number with relatively high ratios. These are the amber and red cells.
The orange and red causes us the greatest concern. A sample of these agents highlights the claiming of private expenditure and not keeping log books or other business records to support expense claims.
Our approach is to raise awareness and provide self-help material including this seminar in the first instance.
If we are concerned that someone has overclaimed expenses, they and/or their tax agent may receive a letter from us requesting they prove the expenses claimed.
Things like bank statements, invoices, a log book and any other information to confirm the expense is deductible.
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Good records are good business. Maintaining good records is important to meet your tax and legal obligations.
Benefits of good record keeping include
- you pay the right amount of tax
- you can reduce compliance costs
- it keeps you in control.
If Inland Revenue was to query your expenses, the onus of proof is on you to provide evidence to support your expense claim.
In effect, no invoice equals no deduction. Therefore record keeping is very important and can cause unnecessary grief for customers if not done correctly.
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You can keep your records three ways. By paper, on the computer, or in the cloud.
A well-kept cash book will allow you to keep track of how much money is coming in and going out, help prepare cash flow budgets, and as the basis for preparing end-of-year financial accounts and other tax returns.
Many tax professionals have a preferred online accounting system or can recommend one suitable for your business.
You can photograph receipts and keep them as images, rather than keep paper. As many of you are aware, paper receipts fade over time.
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There are three types of business expenses - non-deductible, revenue and capital expenses.
Example of revenue expenses are advertising and stationery. Examples of capital expenses are vehicles, mobile phones and computers. These are not fully deductible, however depreciation may be claimed.
From 17 March 2021 the threshold for low value assets has permanently increased to one thousand dollars.
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Non-deductible expenses.
- Private meal expenses.
- Clothing, unless it's a uniform with a visible logo or it's protective in nature.
- Personal grooming including hair, nails, makeup, skin care and cosmetic surgery.
- Golf and gym memberships.
- Penalties and fines - Parking or traffic fines are non-deductible even if it's during business trips.
All of these expenses fall under the private limitation, section DA 2, of the Income Tax Act 2007.
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Vehicle expenses. Three ways to work out your expenses are
- portion of actual cost
- kilometre rates
- fallback option - up to 25 percent of vehicle expenses.
Just note you must have a log book for options one and two.
Go to www.ird.govt.nz and search 'vehicle logbook' and select 'use a logbook'.
There are plenty of apps available to assist too.
It's unlikely that a vehicle is 100 percent business, and we would expect to see an apportionment.
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Gifts. Gifts may be able to be claimed for tax purposes. To be claimed the gift must relate to earning your income.
You can partly or fully claim gift expenses depending on the type of gift. For example, only fifty percent for food and drink can be claimed.
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Entertainment. You may be able to claim business entertainment expenses.
You may normally claim 50 percent of the bill. For example, a business lunch or dinner.
There's an entertainment booklet IR268 with more detail.
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Record keeping for gifts or entertainment. You must record the following for gifts or entertainment:
- the name of the person or persons
- their business, and the position or positions they hold where applicable
- the property address the gift or entertainment relates to
- the reason for the entertainment, and
- invoices and receipts.
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There are two methods for working out home office expenses.
The first option is calculating your own square metre rate as above in the example.
The second option is using Inland Revenue's square metre rate, which can be found on ird.govt.nz
Option 1 is usually most beneficial.
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Other business expenses you can claim include the REA licence and training. Please note the real estate qualification is not deductible.
For telephone and home lines, you can claim 50 percent of the telephone rental, plus any business, toll or mobile calls. Please note this only applies when the home is the centre of operations.
For telephone mobile phones, prepaid, you can claim a reasonable percentage. For a plan, business calls are fully deductible.
For the internet, you can claim the percentage of business use.
For advertising and marketing, claim the costs.
For ACC, the ACC levies are calculated on the end-of-year net profit.
Insurance is fully deductible if specifically related to the business.
For salary and wages, gross wages paid to employees are fully deductible.
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Tips for filing GST returns.
Your tax invoices will show your total commission, tax and GST.
When completing your GST return, include your total commission based on your invoice. This is letter B on the invoice.
We often find that customers return the net amount based on what is in their bank statement, letter D on this invoice.
If you use the figure from your bank statement, letter D in this example, you'll be missing the tax and under declaring your income.
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Remember, Inland Revenue is here to help.
Good records are key for a successful business and there are lots of places you can go to find useful information.
For more information on real estate, go to ird.govt.nz and type in the search box 'real estate'.
There are useful fact sheets available on expenses (IR830A), and working in the real estate industry, GST and tax obligations (IR830).
You can email us general queries at [email protected] and customer specific queries through your myIR account.
Good records are key for a successful business.