Bookkeeping and Taxes for Realtors in Ontario
Real estate agents have one of the most inconsistent income patterns of any profession we work with, and a set of tax rules that a generalist bookkeeper usually gets wrong. Commission timing, HST, vehicle expenses, and the decision to incorporate through a PREC all work differently for realtors than for a typical small business.
How Commission Income Actually Works
Your brokerage collects the full commission from the transaction, deducts its split and desk fees, and pays you the net amount. For bookkeeping purposes, your income is the gross commission you earned, not just the net deposit that lands in your account. The brokerage's cut is a deductible business expense, not a reduction to your revenue. Getting this backwards understates both your revenue and your expenses, which distorts your financial picture even if the bottom line nets out the same.
HST on Real Estate Commissions
Real estate commissions are fully taxable for HST purposes, unlike many professional and medical services. Once your commission income exceeds $30,000 in a calendar year or over four consecutive quarters, you are required to register for HST and charge it on your commissions.
If you incorporate through a PREC, the corporation needs its own HST registration, separate from your personal one. Many realtors who incorporate mid-year forget this step and end up with a compliance gap.
Should You Incorporate? The PREC Question
Ontario has allowed Personal Real Estate Corporations since October 2020. A PREC lets a realtor earn commission income through a corporation instead of personally, with the same tax deferral advantage available to other incorporated professionals: pay corporate tax at roughly 12.2% on active business income up to $500,000, and only pay personal tax on what you actually draw out.
The structural rule that trips people up: the realtor must be the sole voting shareholder and director of the PREC. Non-arm's-length family members can hold non-voting equity shares in some structures, but they cannot control the corporation, and RECO has specific requirements around this that your lawyer needs to set up correctly at incorporation.
As a general guide, once your net commission income is consistently above $80,000 to $100,000 a year, a PREC is worth a serious look. Below that, the incorporation and accounting costs often outweigh the deferral benefit.
Vehicle Expenses: Your Biggest Deduction and Your Biggest Audit Risk
Realtors drive constantly, showings, listing appointments, open houses, client meetings, and vehicle expenses are usually one of the largest deductions on a realtor's return. They are also one of the most commonly denied deductions on audit, because most realtors do not keep a proper mileage log.
CRA wants a record showing the date, destination, purpose, and kilometres for each business trip, not an estimated percentage applied at year end. A log kept in the moment, even a simple app, is what protects the deduction if CRA asks.
Other Commonly Missed Deductions
- MLS and real estate board membership fees
- Marketing costs: signage, professional photography, staging, online ads
- Errors and omissions insurance
- Home office expenses, proportional to the space used
- Client gifts and closing gifts, within CRA's reasonable limits
- Continuing education and licensing renewal fees
Referral Fees and Team Splits
If you pay a referral fee to another agent or split commission with a team member who is not an employee, that payment typically needs a T4A issued at year end. This is one of the most frequently missed filing requirements we see when we take on a new realtor client, and it is an easy one for CRA to catch since it shows up as a clear expense with no matching slip.