A real estate agent's trust account is not the agency's money. The rent collected from tenants and the deposits held pending settlement belong to the landlords, vendors, and purchasers respectively. Mixing trust money with operating funds — even briefly — is commingling, which is a disciplinary offence under every state's real estate licensing legislation and, in more serious cases, a criminal matter. The bookkeeper's first task in any new real estate engagement is to confirm that the trust account structure is correct before touching any other aspect of the books.
Trust Accounting Obligations by Jurisdiction
Each state imposes its own legislative framework. In New South Wales, trust accounting is governed by the Property and Stock Agents Act 2002 and the Property and Stock Agents Regulation 2022. In Queensland, the relevant instrument is the Property Occupations Act 2014. In Victoria, the Estate Agents Act 1980 applies. All three impose a requirement for monthly trust account reconciliations, audited annually by an approved auditor, with audit reports lodged with the relevant regulator.
The trust account reconciliation is a three-way reconciliation: the trust ledger balances (one ledger card per client) must agree with the trust bank statement balance and with the total of all client ledger balances. Any discrepancy, however small, must be investigated and resolved before the monthly reconciliation is completed. Timing differences are acceptable in the short run; unresolved variances are not.
The operating account of the agency should contain only the agency's own money: commission income (after it has been drawn from trust), fees charged for services, and owner-funded expenditure. Where the agency advances money on behalf of a landlord (e.g., paying for urgent repairs before reimbursement), the advance must be tracked as a trust account disbursement and reimbursed through the proper trust ledger process — not as a payment from the operating account that is later recovered.
Property Management Commission and Revenue Recognition
Property management commission is a taxable supply. The agency charges commission on rent collected — typically expressed as a percentage of the gross rent (commonly 7–10% in metro areas, higher in regional markets). The commission is earned and recognised when the rent is collected; it is drawn from the trust account into the operating account only after it has been earned.
The journal flow is: rent collected from tenant to trust account (not P&L); commission drawn from trust to operating account (P&L credit: Management Commission Income, plus GST); net amount remitted to landlord from trust. If the agency uses a property management software such as PropertyMe, Palace, or Console Cloud, the software will generate a distribution statement for each landlord showing the rent collected, disbursements made, and commission deducted. These statements are the source documents for each trust withdrawal.
The rent collected and remitted to the landlord is not income of the agency. A bookkeeper who codes trust receipts to income will dramatically overstate the agency's revenue. The correct treatment is to keep rent flows entirely within the trust account and record only the commission drawn therefrom as operating income.
Sales Commission: Recognition Timing
Sales commission on property transactions is not recognised at exchange or at the signing of the agency agreement. The agent's right to the commission crystallises when the agency agreement's conditions are met — in most standard Australian contracts, this means at unconditional exchange of contracts, not at settlement.
This distinction matters at year-end. An auction sale in late June, with settlement scheduled for late August, has an unconditional exchange before 30 June. The commission income accrues in the June financial year, regardless of when the settlement cheque is collected and the commission drawn from trust. Deferring recognition to the settlement date understates June income and overstates August income — a straightforward timing error with tax consequences.
The practical test is: has the vendor become contractually obliged to pay the commission? For most residential sales, that obligation arises at exchange of contracts. For off-the-plan sales with extended sunset clauses, the position is more complex and may require review of the agency agreement terms.
Vendor Disbursements and GST
Advertising, professional photography, floor plans, auction fees, and council certificate searches are commonly charged through a real estate transaction. How these are billed determines the GST treatment.
Where the agency pays the cost directly and on-bills it to the vendor as a separate charge — listing the item as a disbursement on the agency's tax invoice — the agency is making a supply of that service to the vendor and must apply GST to the charge if the total billing exceeds the GST registration threshold. The underlying supplier's GST position is irrelevant; the agent's on-supply is assessed separately.
Where the vendor pays the cost directly to the supplier (e.g., the vendor pays a photographer's invoice directly), there is no supply by the agency and therefore no GST issue. Bookkeepers should review the agency's standard terms to determine which model applies for each disbursement type, because many agencies have mixed practices that are not consistent across transaction types.
Conjunctional Commissions and Recipient-Created Tax Invoices
When two agencies cooperate on a sale — commonly an external agent introducing a buyer to a listing agent — the commission is split. The listing agent typically collects the full commission from the vendor's trust funds and then remits the co-agent's share. The remittance to the co-agent is a taxable supply by the co-agent to the listing agent.
In practice, many co-agency splits are documented via a Recipient-Created Tax Invoice (RCTI), where the listing agent issues the tax invoice on behalf of the co-agent. An RCTI arrangement requires a written RCTI agreement, both parties must be GST-registered, and the issuing agent must not have reason to believe the co-agent is not registered (s.29-70 GST Act). The co-agent cannot also issue a tax invoice for the same supply. If the RCTI arrangements are not documented correctly, the listing agent may find themselves unable to claim an ITC on the split payment.
Salespeople: Employees or Contractors?
The distinction between employee and independent contractor in real estate has been litigated extensively. The Hollis v Vabu [2001] HCA 44 multi-factor test applies: does the worker operate as an independent business entity, or as part of the principal's business? Indicators of employment include exclusivity arrangements with the one agency, provision of equipment, mandatory attendance requirements, and the degree of control over how the work is performed.
Many real estate salespeople hold their own ABN and believe they are contractors. However, if the agency controls their hours, provides the CRM, requires attendance at office meetings, and prohibits them from working for other agencies, the ATO may characterise the relationship as employment. The PAYG withholding, superannuation guarantee, and payroll tax consequences of misclassification are the agency principal's liability, not the salesperson's. A bookkeeper onboarding a real estate client should request copies of all contractor agreements and perform a classification review before lodging any activity statements.