14 May 2002 External T.I. 2002-0135715 - meaning of 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 remuneration paid on the basis of a percentage of the sales volume generated by an employee is a "commission."

Position: Yes.

Reasons: Based on the ordinary meaning of "commission."

XXXXXXXXXX 2002-013571
J. Gibbons, CGA
May 14, 2002

Dear XXXXXXXXXX:

We are replying to your letter dated March 12, 2002, concerning the meaning of "commissions" for purpose of reporting on a T4 Supplementary. In particular, you wish to know whether "service advisors" (SA's) as employed by your company (the "Company") can be considered to receive commissions, based on the following:

? SA's are employed individuals.

? SA's drive their own vehicles to and from work but do not use their vehicles in the course of business.

? SA's greet customers in the service department, listen to their concerns, write up the work order, and sell any necessary repairs to the customers.

? The company pays for all of an SA's expenses, i.e., stationary, supplies, cell phone, etc.

? An SA is paid on the basis of a percentage of the sales volume they generate in terms of labour and parts. This amount is calculated at the end of each month.

? During the month, an advance of $XXXXXXXXXX per day is paid to the SA. The total of the advance is subtracted from the amount determined at month end, and the net amount is either paid to the employee or carried forward to the next month (presumably the former occurs if the net amount is positive and the latter occurs if the net amount is negative).

You wish to know:

1. Whether amounts received by the SA's qualify as commissions, either in whole or in part?

2. If the SA's were paid based on a percentage of gross profit, rather than sales, whether the amounts paid to them would be considered commission?

3. If the SA's received a base salary in addition to an amount based on a percentage of sales, whether the latter portion would be considered a commission?

4. The requirements for completing the T2200. Since SA's expenses are paid for by the Company, you feel that it would be counter-productive to report any amounts as commissions since the Company would either have to either complete the T2200 stating this fact or not complete a T2200 at all.

Our comments

As requested, we have considered your enquiry and have provided our views. However, our comments are of a general nature only since we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC 70-6R4.

In our view, any amounts paid to service advisors on the basis of a percentage of sales (or gross profit, as contemplated in the second scenario) would likely be considered commissions, and should be reported as such. However, since service advisors are not required to pay their own expenses, they would not be entitled to a deduction for employment expenses under 8(1)(f) of the Act, even though they might receive commission income. Accordingly, there would be no purpose in completing T2200's for such employees.

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

??