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IRD is on the trail of real estate agents who overclaim expenses

Property
IRD is on the trail of real estate agents who overclaim expenses

Inland Revenue is planning a crackdown on the expenses claimed by real estate agents.

Most real estate salespeople are classed as self employed contractors, even though they will likely be working as part of a larger real estate agency group.

That arrangement means most agents will be responsible for working out and paying their own taxes.

Because they are self employed, they can offset expenses incurred in the course of running their business against the income they earn from sales commissions, reducing their tax liabilities.

Such expenses could include things such as operating a vehicle, telephone costs, running a home office and paying for accounting services.

However, Inland Revenue suspects some agents have been pushing the boundaries in terms of what they have been claiming as expenses.

IRD says it will be focussing both on the under-reporting of income and over-stating of expenses as part of its new campaign.

"Real estate is one area that is booming during COVID and our analysis of the sector suggests real estate salespeople/agents commonly claim high levels of expenses relative to their income," IRD spokesman Richard Owen said.

"Inland Revenue believes the issue is widespread and we must act.

"People are claiming private expenditure but not keeping logbooks or other business records to support the claim."

Owen emphasised the importance of keeping proper records to support expense claims.

"If we are concerned that someone has over claimed expenses, they will receive a letter from us requesting they prove the expenses claimed," he said.

"Things like bank statements, invoices, a logbook and any other information to confirm the expense is deductible."

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29 Comments

Hilarious. As if the agents are the big crooks here.

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Crackdown on speculators - so called investors is required.

Just like buyer filling declaration for money laundering and citizenship to buy house, why not have a declaration on sellers to declare if they have any other house besides the house that they are selling be it in joint name, partnership firm, share as a director or in trust account (as only one house exempt from BLT) and hopefully do not get away with that selling family home (so no BLT) and other house that not selling is investment property to avoid BLT and each transaction to be filled with IRD to be verfied.

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The home office expense has always been a good legal fiddle for estate agents. I think it allows them to claim a portion of home rates, electric and telephone as tax deductable expenses.

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Any time that IRD can spend less than a dollar to appropriately claim more than a dollar owed to taxpayers I think it should be ruthlessly pursued. Why limit this to one industry? Give them carte blanche to go after theft from taxpayers.

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I like their 'Industry to Industry' strategy,
- Focusing a bunch of resource on one Industry at a time will uncover many stones
- It puts every industry on notice they may be next
- Those dumb enough to ignore that, will eventually be in the industry that next bubbles to the top of the list.

Go IRD :)

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Just curious, is there any difference between claiming a $200000 Porsche Cayenne as business expense vs a $20000 used Corolla?

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Fringe Benefits Tax would certainly be higher!
"You have to pay fringe benefit tax (FBT) if your business makes a vehicle available for employees, their associated persons and shareholder employees to use privately – even if they do not actually use it."

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Unlikely given most Real Estate agents will be trading in their own name, not under a company structure, and therefore no employees, no FBT (and you'd make use of the small company FBT regime even if you were).

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They can avoid the risk by using a double-cab ute. Obviously not eligible for FBT
https://www.newsroom.co.nz/is-nz-subsidising-utes

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Ho ho ho

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Real estate agents claim a lot of business lunches as 100% deductible expenses, which most businesspeople wouldn’t. I remarked to friends recently it’s only a matter of time before the IRD gets off its arse and looks into this. Although, it’s happened a lot sooner than I thought!

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To play devils advocate. I guess they are claiming meals as promotion/advertising which is 100% tax deductible. Sort of a stretch but I see the argument. Wining & Dining is an inherent part of the job

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Donny... "Part of the job"? Really? How many agents have wined and dined you? I dealt with about 100 of them last year and none of them would give you the steam off their p.... [Edit: Watch your language please Karl.]

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ED/mod..sorry, I thought that word would be OK.

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Serious question: How is having a business lunch advertising? I also think in order to make such an argument your need clients there. And I think the record keeping will catch most REA out here even if some of the lunches was genuine entertainment.

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"Envy and jealousy stem from the fundamental inability to rejoice at someone else's happiness or success." -Matthieu Ricard

Feels like another virtue signalling exercise from the government.

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Where is the virtue signalling in enforcing existing law? I have no issues with real estate agents or the income they make. But there are expense rules, that I follow as do other businesspeople, and those rules should be followed by all participants. If there is widespread non-compliance in an industry then non-compliance by other industries will follow if there is no enforcement, which erodes the integrity of the tax system over time leading to non-compliance in other areas.

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I've read a few of Ricards books - one springs to mind called 'Altruism'.

The entire book would be beneficial reading for the entire real estate/property speculation/investment sector.

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IO.. indeed although a number of REA are almost illiterate.

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That's true

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Another PR stunts.. ouh hu uh... - Remember, 'when there's a will there's away' works for both. To catch & To avoid - The winner essentially determined by 'Time', IRD need quick chase and those that try to avoid. If until death IRD unable to probe it? then that's the winner, if IRD catches before death time? then.. one should execute plan for the next action.

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I dont really understand why RE's are contractors. The law says something like, if 80% of your income is derived from a single source you are deemed to be an employee.
Close the loophole.

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Meanwhile, corporations continue with $32trillion estimated tax avoidance in tax havens.
And electorates told that taxing rich folks means they will take their "jobs" to another country.

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Jacinda fiddling around the edges while the property market burns

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Every time an agent sells a house they should spend a tax deductible $40 or $50 on a gift (or coffees or lunch) for both the vendor and the purchaser. Since the average agent only sells a handful of houses a year the costs would be minimal and the potential future financial gains huge not to mention that it would just be a nice way for agents to show their appreciation.
The fact that I have never heard of even one agent doing this provides us with insight as to their level of thinking and their ability as businesspeople/salespeople. Last year I talked to about 100 agents and the best two salespeople I dealt with were the (probably minimum wage/no commission) staff at Harvey Norman and Farmers, where I bought my household stuff.
I bought my house last year from one of the very best agents in Taranaki. She knows I have money as I made an unconditional, cash offer on the place I bought within 3 hours of viewing it but I have never heard a word from her since. If I ever needed money I would back myself to make a killing in an industry where most of your competition are asleep at the wheel.

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How about having a look at agents who flip houses, particularly those that buy from plans to help developments get off the grounds that their companies are marketing then on-sell upon completion. That would be a fruitful exercise if looked at retrospectively for the last 15 -20 years.

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??

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We all know they're sharks and will rip off the taxpayer like they do their clients without giving it a second thought. Its the nature of the industry. Go IRD!

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I always thought that All Self Employed people paid taxes, not hid them. Plus GST naturally.

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