The IRD has identified a trend with Real Estate Agents having high expenses in relation to income. To ensure you’re not penalised, here are some helpful tips and information to help you understand the expense deduction rules and issues they have identified.
Recommendations from Inland Revenue:
– Keep good records: These include receipts, invoices, bank statements, logbooks, worksheets.
– There are 3 ways to keep your records: paper records, on your computer or in the cloud. You can take photos of receipts and keep them as images instead of paper copies.
– There are 3 types of expenses. There are some you can’t claim that include private meal expenses, private clothing, personal grooming, golf/gym memberships, penalties, and fines.
Vehicle expenses: There are 3 ways to work these out and you must have a logbook for some.
Gifts: 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 50% for food and drink can be claimed.
Entertainment: business entertainment expenses may be claimed if there is a connection to a property you are selling. You may normally claim 50% of the bill. For example, a business lunch/dinner. Reference the Entertainment Booklet IR268 on the IRD website for more detail.
You need to keep a record for gifts or entertainment which includes the name of the person (s), their business and the position (s) they hold where applicable, the property address the gift or entertainment relates to, the reason for the entertainment, and any invoices/receipts.
Home Office expenses – There are 2 methods to help you calculate these. You can calculate your own m2 rate or use the Inland Revenue m2 rate. You can claim 6% of Rent, Power, House insurance, Mortgage interest, Rates, or Contents insurance.
Other business expenses include your REA license and training, phone and internet, advertising and marketing, insurance, salespeople and personal assistants (salaries/wages).
There is more information and fact sheets available on the website ird.govt.nz. Use keyword ‘real estate’ to bring these up. You can email any general queries to the IRD at: email@example.com or specific queries through your myIR account.
To discuss this further with us, please call us at a time that suits you.