Discounts on Merchandise and Commissions from Personal Sales

DISCOUNTS ON MERCHANDISE AND COMMISSIONS FROM PERSONAL SALES

Under Canadian tax law, certain discounts provided to employees on merchandise and commissions from personal sales may or may not be considered taxable benefits. The Canada Revenue Agency (CRA) has specific rules and guidelines to determine the taxability of such benefits.

Non-Taxable Discounts

The CRA generally does not consider discounts on merchandise given to employees as taxable benefits if the following conditions are met:

• The discount is offered to all employees on the employer's merchandise.
• The employee pays at least the employer's cost of the merchandise.

These non-taxable discounts aim to provide employees with benefits as part of their employment package without incurring tax obligations.

Taxable Discounts

However, the CRA considers discounts to be taxable in the following situations:

• Special Arrangements: When the discount is offered through a special arrangement with an individual employee or a specific group of employees.
• Below Cost: If the merchandise is sold to the employee at a price less than the employer's cost (excluding old or soiled merchandise).
• Reciprocal Agreements: If the employer makes a reciprocal agreement with other employers to provide discounts to employees of each other.

In these cases, the value of the discount must be included in the employee’s income and reported appropriately.

Commissions from Personal Sales

Commissions earned by employees from personal sales are generally taxable as employment income. Employers are required to include these amounts in the employee’s T4 slip for the applicable tax year. Additionally, employees earning commissions may deduct work-related expenses if they meet specific CRA criteria.

Key Points on Commission-Based Income

• Commissions are taxable and must be reported as income.
• Eligible deductions include expenses directly related to earning commissions, such as travel, advertising, and office costs.
• Proper documentation and receipts are necessary to claim deductions.

Employer Responsibilities

Employers must:

• Accurately calculate and report taxable benefits for discounts and commissions.
• Provide employees with clear documentation, such as T4 slips, outlining taxable benefits.
• Ensure compliance with CRA guidelines to avoid penalties.

CRA Guidelines

For further information, refer to the CRA’s official guidance on Discounts on Merchandise and Commissions. This resource provides additional details on how to assess taxability and maintain compliance with Canadian tax laws.