Link To Support Bill 104: http://realtortaxfairness.ca/

Scrolling through my Facebook Page, I saw the usual updates, weather warnings, baby pictures and photos of people at the gym, who sadly put me to shame while I was eating my homemade banana cake and guzzling down (skim!) milk. I have many real estate agents on my FB friends list, from old colleagues, friends to even my cousins and brother (Hi VJ!). Like myself, you may have noticed recently some real estate agents sharing a link asking you to support Bill 104, Tax Fairness for Realtors Act, 2017.

What exactly are Real Estate Agents in Ontario asking us to support?

Real Estate Agents in Ontario must structure their business as independent contractors, instead of Incorporating their business. Realtors have been looking for support to change this for a while, to allow real estate agents in Ontario to incorporate their business. This makes a huge difference for agents, especially for those who are above a certain income threshold. For example, agents who fall in the highest income bracket are paying approx. 46% in taxes vs. 16.5% if they were incorporated.

What is the Act Asking: To allow Real Estate Agents to incorporate their business

Realtors in other Canadian provinces, such as British Columbia, Quebec, Alberta, Manitoba, Saskatchewan and Nova Scotia are able to incorporate their business, and Ontario Realtors are fighting to be allowed to do the same. One of the largest arguments towards having this Act passed, is the comparison to similar services offered in Ontario such as Mortgage Brokers, Financial Advisors, Accountants, and Lawyers who are all legally allowed to incorporate their business.
So why not Real Estate Agents?

The Tax Fairness for Realtors Act, 2017 was brought forth by MPP Todd Smith (Thank you Todd!), which is being introduced for the third time. From a statement taken from intelligencer.ca , Todd Smith argued that “recent studies have shown the change will come at no cost to the provincial treasury and will actually result in a small bump for Ontario’s GDP.” If the bill is passed, it would amend the Real Estate and Business Broker Act 2002 (REBBA), which is currently preventing real estate agents to incorporate their business. No other changes such as fees or altering consumer protection would be impacted by the supported bill, which is also co-sponsored by both Liberal and NDP members. The bill is set to receive its second reading on March 23, 2017.

How much money do you think a Real Estate Agent will profit from selling a $500,000 home?

For most of us, we are only exposed to the front end of the fees, closing costs and commission in our real estate transactions. It’s hard to stand in a room full of real estate agents and not have a single one who has not encountered negotiating to lower their commission while working with a seller (keeping in mind that buyers don’t pay commission!). Of course, it’s natural from the perspective of a seller to want to decrease the commission you pay. However, agents encounter a lot of costs, behind the scenes, we’re not always aware of.

Let’s Break it Down:

We will assume the property sold for the same price it was listed for: $500,000
The typical commission percentage is 5%, so if you carry over the 1, you get a commission paid by the sellers of $25,000 + HST. Taken from an article written by gettoronto.ca, here is the structure proposed on realtors pay structure.
comission-breakdown-chart

Source: gettoronto.ca


What the real estate agent earns:

$25,000 Commission
– $12,500 Paid to Co-operating brokerage (buyers agency)
– $3,750* Agents pays their brokerage (*depending on their commission split deal)
– $2,000 Listing Cost
– $1,500 Average price for business expenses 
– $3,000 Taxes paid from earnings
$2,250 Net Profit

The average gross income a real estate agent makes is $75,000, which roughly estimates to selling 6 homes per years. This is not to mention other expenses Real Estate agents pay on an on-going business to create a pipeline for future business, especially with the amount of competition, there are over 42,000 agents in the GTA alone. Their costs increase in relation with their competition leaving them responsible for marketing, costs of maintaining and keeping their license active, paying board fees, websites and much more. In my personal experience, a valuable agent is worth so much more than just the dollar signs. Agents have a real fight inside of them. When it comes to buying or selling a home, their advice is indispensable, and having peace of mind to know that you have someone to fight for your best interest when it comes to one of your largest assets, well it’s simply invaluable. As much as their competition is large and the average salary is not the figure most people may have imagined it to be, what keeps agents going is their passion for their business and clients. It’s really hard to come across a real estate agent who is not proud of what they do, passionate about the industry and excited to work for their clients. So yes, agents deserve to be treated fairly and to be able to incorporate their services. Vote Yes.

Now, on to the next important questions for clients, how does this affect you or the commission structure you pay?

It doesn’t. The Tax Fairness For Realtors Act, 2017 does not alter or increase the commission’s structure of fees paid by clients. This Act amends the current Bill under REBBA (Real Estate and Business Brokers Act) 2002, which allows real estate agent to incorporate their business and structure their business differently.

The higher the income received, the bigger difference the Tax Fairness For Realtors Act will make for real estate agents. This a fight for real estate agents to be in a different tax bracket. Operating as a corporation also allows for real estate agents to write off expenses with more flexibility. Incorporating their business will allow for real estate agent to investment into their business, marketing, and continued training, which is ultimately redirected to providing more value for their clients. This also means they will be able to spend more on marketing, in hopes to result is quicker sales, while netting more money for their clients.

OREA (Ontario Real Estate Association), which serves as the Real Estate Licensing in Ontario, has provided information on their website, orea.com, for real estate agents to understand how this will impact agents in a positive way. They are also supporting the Tax Fairness For Realtors Act for agents across Ontario.

Actions you can take to make this change happen

Visit realtortaxfairness.ca and complete the simple steps to show your local MPP that you are in support of passing Bill 104 Tax Fairness For Realtors Act, 2017.

  • Tom

    Totally exaggerated business and advertising cost there. Also your average income doesn’t sound right. Most GTA agents make on average 150k on if they sell 6 houses a year. What makes you think this is fair for a highschool dropout spending on average 10 to 20 hrs per deal to make this kind of cash? Why do I say controlled? Take a look at the realtor site…

    • Shahla Jalali

      Hi Tom, thanks for the opening up the discussion on the structure of the commission and expenses! There are approx. 42,000 realtors in the GTA and 57% sell 3 homes or less per year. For agents that sell 6 homes/year the average they make annually, before expenses, is $82,500 (according to a Globe and Mail https://goo.gl/03uOWD). Now, of course with the current trend of the market in the GTA, the supply of homes is much less than demand, which has moved the cycle of buying and faster. However, as the market fluctuates, more strategy and funds need to be allocated for advertisement, which can become costly (even with online advertising). Being in a sales position (realtor or other) has always allowed for limitless opportunity, however, it does come with its own set of challenges, especially since it’s purely commission based. Some of the top agents have been in the industry for a little while, which took them time to learn the industry, create a clientele and their business structure. Whether a realtor is coming from a different career, or are starting out young, they definitely have a lot of work to do to get them self up and running (i.e. create a brand, website, obtain their license), especially with the number of realtors they are competing against. They have to spend a lot of hours behind the scenes getting themselves operative, learning the market, training, and more. I completely understand your comment, though, some of these figures surprised me too!