Real Estate Accounting
GST/HST Records for Canadian Realtors: What to Keep and How Long
A practical guide for Canadian Realtors on GST/HST registration, commission records, ITCs, and how long to keep everything for the CRA.
A referral fee almost never starts as a formal transaction. It starts as a favor — a client relocating out of state, a phone call to an agent in another city, a name and number passed along with a promise to "sort the paperwork out later." Months later, when the deal actually closes, that casual understanding is supposed to turn into a real check. It doesn't always happen. Referral fees get treated more informally than any other type of real estate income, and that informality is exactly why they go unpaid, get taxed incorrectly, or vanish into a blended commission number where nobody can trace them anymore.
This guide walks through how referral agreements are actually structured, the disputes that come up again and again, how referral income is taxed on both sides of the border, and why it deserves its own line in your books — even when the tax form doesn't ask for one.
How a Referral Fee Actually Works
A real estate referral happens when one licensed agent or broker sends a client to another, in exchange for a share of the commission the receiving side earns once the deal closes. Agents new to this often ask for a fixed number, but there isn't one — both referral agreement templates linked below leave the percentage as an open field for exactly this reason. In practice, agents commonly cite something around 25% of the gross commission as a starting point, but it's fully negotiable between the two sides.
The detail that catches newer agents off guard: this is a brokerage-to-brokerage arrangement, not an agent-to-agent handshake. An individual agent can't bind their own brokerage to a commission split — the agreement has to be signed by the managing broker (or an authorized office manager) on both sides before it's enforceable. And in most jurisdictions, both parties need an active real estate license to send or receive the fee at all; passing a referral fee to an unlicensed friend or past client generally isn't allowed. Licensing rules — including RESPA compliance in the US — vary by state, so anything beyond the basics is worth confirming with your broker or a real estate attorney.
What a Referral Agreement Actually Needs
A referral agreement doesn't need to be long, but a few fields are the difference between something enforceable and something that falls apart the moment there's a disagreement:
Element | Why It Matters |
|---|---|
Brokerage names, managing broker names, and license numbers on both sides | Confirms both parties are licensed and identifies who's actually bound |
Client contact details | Documents exactly who was referred, and when |
Referral percentage, calculated on gross commission before internal splits | Removes ambiguity about what's owed and to whom |
Payment timeline | Specifies when the fee is due — typically a set number of days after closing, often paid straight out of escrow |
Term / expiration window | Defines how long the referral stays valid, commonly 12–24 months |
Scope of future transactions | Clarifies whether the fee applies if the client comes back for a second deal, or shifts from residential to a different property type |
Tax registration details | US: nothing extra required beyond the license, since the 1099-NEC threshold is $600. Canada: the referring brokerage's GST/HST registration number, since the receiving brokerage has to add the applicable tax to the payment |
Managing broker signatures | Makes the agreement binding on the brokerages, not just the two agents who talked on the phone |
The tax registration line is easy to skip and expensive to skip in Canada specifically — a referral fee there is treated as a taxable business service, which means GST/HST gets added to the payment, and the referring side needs its registration number on file for that to happen cleanly.
Download-Ready Referral Agreement Templates
Use these as a starting point for your own broker-to-broker agreement, then have your managing broker or a real estate attorney review the specifics before anyone signs.
— broker-to-broker template with RESPA-aligned language and 1099-NEC reporting terms
— brokerage-to-brokerage template with GST/HST and T4A reporting terms
Why Verbal Agreements Fall Apart
The most common source of referral disputes isn't disagreement over the percentage — it's the absence of a signed agreement in the first place. A phone call or a text saying "we'll handle the paperwork later" carries no legal weight once a deal closes, because the commission legally belongs to the brokerages, not the individual agents. If client information gets shared before both managing brokers have signed, it becomes much harder to establish that a fee is actually owed later — no matter what was said out loud.
Beyond a missing signature, a handful of specific disputes come up often enough in practice to name directly — these aren't clauses the templates spell out, they're the situations a well-drafted agreement is meant to prevent:
Scope disagreements — a referred buyer shifts from a residential purchase to a commercial property, or comes back years later for a second deal the original agreement never addressed.
Transactions that die and resurrect — a referred client pauses their search, gets marked expired by the receiving agent, then quietly reappears months later and closes. The referring agent expects payment; the receiving agent argues it was a separate, unrelated relationship by then.
Client procurement disputes — the receiving agent claims they already had a relationship with the client before the referral came in, and there's no paper trail to settle it either way.
Agent-only signatures — an agreement signed by the two agents but never by their managing brokers. Regardless of what the document says, it generally isn't binding.
How Experienced Agents Protect Themselves
A few habits consistently separate agents who never run into these problems from those who do:
The agreement gets executed before any client information changes hands — not after, and not "later."
Both managing brokers sign, since that's what actually binds the two brokerages.
The agreement states a specific expiration window and explicitly covers (or excludes) future transactions with the same client.
Any change in the client's status — pausing their search, changing what they want — gets documented in writing the moment it happens, not left as an assumption.
Once the referred deal goes under contract, many referring brokerages send a commission invoice directly to the title company, escrow agent, or closing attorney as a matter of practice — that way the fee gets cut straight from the settlement statement instead of depending on the receiving brokerage to remember and send a check afterward.
Referral Fee Tax: How It Works in the US
For independent contractor agents in the US, referral income is generally treated the same way as ordinary commission income — subject to standard federal and state income tax plus self-employment tax. It isn't reported on a separate form or line; referral income and regular commission are typically combined and reported together as gross receipts on Schedule C. If you paid a referral fee out to another agent, that payment is usually deducted separately as a business expense (commonly under "commissions and fees"), rather than netted directly against the commission you received.
On the reporting side, fees are expected to flow broker-to-broker, and the paying brokerage handles the 1099 reporting once payments to an individual or unincorporated business cross the threshold for the year — historically $600, reported on Form 1099-NEC. Thresholds and rules can change, so this is worth checking against current IRS guidance rather than treating it as permanently fixed.
Referral Fee Tax: How It Works in Canada
In Canada, referral fees are generally treated as business income for a self-employed agent, taxable at the individual's marginal rate. As in the US, referral income isn't filed on a separate form — commissions and referral fees are combined and reported together as gross business income on Form T2125.
The layer that's easy to miss is GST/HST. A referral fee is treated as a taxable business service, meaning GST/HST generally needs to be charged and collected on a fee received, while a fee paid out to another agent can generally support an input tax credit claim. This is also why the referring brokerage's GST/HST registration number belongs on the agreement itself — the receiving brokerage needs it to apply the right provincial tax rate before disbursing payment. On the reporting side, the paying brokerage generally issues a T4A slip (Box 048) once payments to a self-employed agent cross the threshold for the year — historically $500 CAD — again worth confirming against current CRA guidance.
Why Track Referral Income Separately — Even Though the Tax Form Doesn't Require It
Since referral income and commission income usually land on the same line at tax time, it's tempting to just record every deposit as one blended "commission" total. That's a mistake for reasons that have nothing to do with taxes.
A referral fee and a standard commission represent very different amounts of work. A referral might be a single phone call and a signed agreement; a standard commission can represent months of showings, negotiation, and client management. Blend the two together and you lose the ability to answer a simple question: how much of this year's income came from deals I actually worked, versus deals I just pointed toward someone else?
Keeping referral income in its own category also makes a missing payment much easier to catch. A $2,500 referral fee that never arrived is a lot harder to notice when it's buried inside a general income total than it is sitting in its own line, clearly marked as expected but not yet received.
How AgentXpense Helps
AgentXpense's Income module starts with Referrals as a default category, kept separate from the commission income that flows in automatically from closed deals — so a referral fee doesn't get blended into a general income total just because the tax form will eventually combine the two.
Each referral entry can carry a note, an optional link to the deal it's connected to, and a receipt attachment — which is exactly where the signed referral agreement or the closing commission statement belongs, rather than sitting in a separate folder you'll have to go hunting for later. The same tax type field used everywhere else in the app (None, Inclusive, Exclusive) applies to referral entries too, so Canadian agents can keep GST/HST handled consistently on a referral fee the same way it's handled on a standard commission. And because Referrals is its own category from day one, it shows up as its own slice in the Income summary and its own line in Reports — no manual re-sorting required at tax time.
None of this replaces a signed broker-to-broker agreement, and it doesn't decide what's taxable or how a specific arrangement should be reported — that depends on the agreement itself and a qualified tax professional. What it does is keep referral income visible on its own, with its supporting documents attached, instead of disappearing into a single commission figure the moment it lands in your account.
Final Takeaway
Referral income causes more disputes and more bookkeeping confusion than its size usually justifies, mostly because it gets treated as an informal side arrangement instead of a real piece of business income. A written agreement signed by both managing brokers, a clear expiration window, and a habit of invoicing the closing table directly solve most of the dispute side. Keeping referral income in its own category — even though it lands on the same tax line as everything else — solves the tracking side, and makes it far easier to see exactly where your business's income is actually coming from.
Haven't got a signed agreement in place yet? Grab the US Real Estate Referral Fee Agreement or Canada Real Estate Referral Fee Agreement template before your next referral call, not after.
FAQs
How do real estate referral fees work?
One licensed agent or broker refers a client to another in exchange for a share of the commission the receiving side earns once the deal closes. The arrangement is between the brokerages, not the individual agents, and needs a signed agreement from both managing brokers to be enforceable.
Can an unlicensed person receive a real estate referral fee?
Generally, no. Most jurisdictions require both parties to hold an active real estate license — sending a fee to an unlicensed friend or past client for a lead typically isn't permitted, though specific rules vary by location.
How much is a real estate referral fee?
There's no fixed amount. 25% of the gross commission is commonly cited, but the actual percentage is negotiated between the two brokerages and calculated before any internal agent-broker splits.
Is a referral fee paid on the sale price or the commission?
The commission, not the sale price. It's typically calculated as a percentage of the gross commission the receiving brokerage earns on the transaction.
Are real estate referral fees subject to self-employment tax?
For independent contractor agents in the US, yes — referral income is generally treated as self-employment income, taxed the same way as regular commission.
Do real estate referral fees need a 1099, or is a T4A required instead?
Referral income and commission income are typically combined and reported together rather than filed on separate forms. In the US, the paying brokerage generally issues a 1099-NEC once payments cross $600 in a calendar year. In Canada, a T4A slip (Box 048) is generally issued once payments cross $500 CAD. Confirm current thresholds against IRS or CRA guidance.
Does a referral agreement expire if the client doesn't buy right away?
It depends entirely on what the agreement specifies. A well-written agreement includes a defined expiration window — commonly 12–24 months — rather than leaving the timeline open-ended.
Can a text message or email serve as a valid referral contract?
Generally not on its own. A referral fee is typically only enforceable once a formal agreement is signed by the managing brokers on both sides — an informal message alone usually doesn't bind either brokerage.
Should referral income be tracked separately from commission income?
Yes, even though tax filings typically combine the two. Tracking them separately makes it easier to see which income actually required significant work versus which came from a referral, and makes a delayed or missing payment much easier to notice.
