Real Estate Agency Accounting: Commission, Client Money and the Tax File

This is written for licensed property agents, managers of multi-agent offices and accountants who close the books of a real estate agency. The point is to separate the money that is genuinely yours from the money that merely passes through your hands, and to record that split in a way an assessor will accept. In the trade files I have handled, nearly every problem in this sector traces back to that one distinction.

What counts as agency income

A property office handles three kinds of money, and only one of them is revenue.

Trouble starts when all three flow through one bank account. When annual turnover on the agency's account is several times the declared income, the tax office quite reasonably asks what that money was — and a verbal explanation will not close the gap. The whole difference is then treated as concealed income.

Commission tariffs and documentation

Brokerage fees follow the tariff approved by the trade union and the supervisory commission, and it is revised annually — use the tariff notified for the year in question. The usual structure is a percentage of the transaction value in sales, charged to each side, and an amount tied to the rent and deposit in lease agreements.

What matters for accounting is that each deal leaves three documents behind: the contract carrying its tracking code, a separate fee receipt or invoice for each side, and the journal entry recognising the income. Combining the buyer's and seller's fee into a single receipt makes later reconciliation between deal count and income unnecessarily hard.

Tracking codes and property registration systems

Two systems are often confused. The property transaction registration system is where the agency files the contract and obtains the tracking code; its primary purpose is preventing conflicting sales and giving contracts a verifiable trail. The national property and residence system is where owners and occupants self-declare occupancy, and it underpins vacant-home taxation and certain reliefs.

For tax purposes, the tracking code does two things for you. It creates a count of contracts issued that acts as a proxy for activity level, so a wide gap between contract volume and declared income invites review. And the same contract is the evidence that the large sum in the deal belonged to the parties and you were only the intermediary. The owner's side of the tax question is covered in the rental income article.

Splitting commission with agents

• Employed agent. The payment is salary and benefits, subject to payroll tax and insurance filings, whatever it is called internally.
• Independent licensed agent. They invoice you for their share and you record a service expense.
• Split between two agencies. Each records only its own share as income and holds an invoice for the other side's share.

The worst case is an undocumented cash split: the full commission stays in your income while the payment is disallowed as an expense, so you pay tax on money you never kept.

Tax obligations of a property office

Most agents are individuals taxed under the business income chapter. A point that trips people up: grouping under the Article 95 regulation follows the agency's own commission income, not the value of the deals it brokered. A year of heavy transactions with thin fees does not automatically put you in the first group.

1. Issue a receipt or invoice for every fee on the day of the deal.
2. Record income daily and keep client funds separate in the books.
3. File quarterly transaction reports within one and a half months of quarter end where applicable.
4. File the annual return by 31 Khordad for individuals.
5. Check whether the Article 100 note simplification applies if income is below the annual ceiling.
6. Archive contracts and tracking codes by fiscal year.
7. Keep a monthly reconciliation between bank movement and recorded income.

VAT and electronic invoicing

Brokerage is in principle a taxable service unless it falls within a statutory exemption, so confirm current treatment against the latest circular. If you are registered, two operational points matter: the tax base is the fee alone, never the transaction value, and the electronic invoice filed to the taxpayer portal must carry that same fee amount. Filing mechanics are in the taxpayer system guide.

Deductible costs of an agency

The cost base is narrow but repetitive: office rent, staff salaries and insurance, advertising and listings, union membership and licence renewal, system and internet subscriptions, travel for viewings, and agent commissions. Each needs three things — a business purpose, a valid supporting document, and recording in the correct period. Viewing travel and client hospitality carry the highest risk of disallowance because they are usually booked without invoices.

Monthly numbers worth watching

• Contracts closed and average commission per contract
• Ratio of active listings to completed deals, your conversion rate
• Share of lettings income versus sales income, which drives cash stability
• Client funds balance at month end, reconciled to the dedicated bank account
• Fixed monthly cost and the number of deals needed to cover it

Key takeaways

• Only commission is income; proving that split is your job, not the assessor's assumption.
• Keep client money in a separate account and a separate ledger, far from personal accounts.
• The tracking code is both a legal safeguard and your evidence of acting as intermediary.
• Agent commissions without an employment contract or an invoice are not deductible.
• VAT and e-invoicing apply to the fee, never to the transaction value.