Agents will challenge tax ruling

Press, 2 August 1989, Page 9

Agents will challenge tax ruling

By

TOM METCALFE

Real estate agents will challenge in court a tax ruling that property salespeople are employees and must have PAYE tax deducted from their commissions.

The Real Estate Institute said the ruling by the Inland Revenue Department in December last year was devastating to salespeople and would change the nature of the real estate industry.

The institute’s national president, Mr Ron Hewitt, said in Auckland last evening that talks between the institute and the department were deadlocked, with the department confirming that it intended to enforce the ruling.

The ruling is based on the department’s interpretation of the laws governing real estate agents, and came into force on April 1 this year.

It means salespeople are now considered employees of real estate agents, instead of subcontractors. As a result, PAYE tax must be deducted from their commissions, and they are unable to claim work-related expenses, such as running a car, from their taxes.

Mr Hewitt said that previously salespeople had paid 20 per cent withholding tax on their commissions, and could claim expenses.

Now the department expected agents to deduct 33 per cent PAYE from the commissions, which fluctuated from week to week.

“We think of the industry as a free enterprise,” Mr Hewitt said.

“You get paid for what you do.” Taken to its limits, the ruling could mean wage awards and trade unions, he said. “That could raise fees, and put people out of jobs.”

The institute had advised agents to deduct only 20 per cent tax from commissions, instead of the 33 per cent the department expected, but agents were being careful to avoid penalty taxes. Mr Hewitt hoped the matter would be heard in the High Court at Christchurch within a month.