29 July 1994 External T.I. 9409245 - COMMISSIONS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether or not certain types of bonus payments may be considered commission for the purposes of subparagraph 8(1)(f)(iii).

Position TAKEN:

XXXXXXXXXX of the XXXXXXXXXX components which make up the total bonus payment may be considered commission income for the purposes of 8(1)(f)(iii).

Reasons FOR POSITION TAKEN:

XXXXXXXXXX of the XXXXXXXXXX components are fixed by reference to the volume of sales made or the contracts negotiated by the individual sales representative as required by the Act while the XXXXXXXXXX components is not.

XXXXXXXXXX 940924
D. Zion
Attention: XXXXXXXXXX

July 29, 1994

Dear XXXXXXXXXX:

Re: Commissions

We are writing in response to your letter of April 6, 1994 in which you request a written opinion confirming whether certain portions of the compensation paid to your sales force should be considered commissions for tax purposes. We apologize for the delay in replying.

From the information provided in your letter and a subsequent telephone conversation (Zion/XXXXXXXXXX), we understand that the company has XXXXXXXXXX levels of sales representatives: XXXXXXXXXX. One's position and corresponding compensation package is dependent on the size of their clients' accounts or the size of the sales territory for which they are responsible. The total compensation package for each of the XXXXXXXXXX levels of sales representatives is made up of XXXXXXXXXX% base salary and XXXXXXXXXX% incentive payments. A portion of their total incentive compensation is based on commissions, that is, a percentage of their weekly sales. The XXXXXXXXXX also receive an additional XXXXXXXXXX% commission on certain cash item sales. The balance of the incentive compensation is termed "bonus" payments.

The total bonus amount has XXXXXXXXXX components. The XXXXXXXXXX components are based on personal sales levels objectives established for each individual sales representative. The pay-out for these XXXXXXXXXX components are specific dollar amounts which will be paid to the sales representative upon the achievement of the sales volume objectives. The XXXXXXXXXX component which you have given the term XXXXXXXXXX objective is a regional or "team" objective. If the team has less than a certain level or percentage of XXXXXXXXXX cancellations then each member of the team receives a bonus payment.

Our Comments

In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993.

In our view, those incentive payments which are described above as commissions as well as the bonus payments for XXXXXXXXXX may be considered to be "commissions or other similar amount fixed by reference to the volume of sales made or the contracts negotiated" for the purposes of subparagraph 8(1)(f)(iii) of the Act. The XXXXXXXXXX component could not, in our opinion, be considered a commission or an amount similarly determined. It is not an amount based on the volume of the sales made or the contracts negotiated by the sales representative who would claim the deduction pursuant to this subparagraph.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch

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