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.
Principal Issues: Can the real estate agent pay commissions to an assistant based on the amount of sales made by the real estate agent?
Are there limits with respect to the deductibility of the amounts paid to the assistant for tax purposes?
Position: Yes, the real estate agent can pay commissions to an assistant. Yes, there are conditions and limitations set out in the Income Tax Act with respect to the deductibility of an amount paid ot an assistant of a real estate agent .
Reasons: Paragraph 18(1)(a) for business expenses. Subsection 8(2) and paragraph 8(1)(f) for employees.
2005-011827
XXXXXXXXXX Luisa A. Majerus, CA
(613) 832-3488
May 17, 2005
Dear XXXXXXXXXX:
Re: Deductible from real estate agent's business or commissions income
This is in reply to your letter of November 15, 2004, concerning the above-noted subject. We apologize for the delay in responding.
You are enquiring whether a real estate agent can pay commissions to an assistant based on the amount of sales made by the real estate agent. In addition, you are inquiring whether there are limits set out in the Income Tax Act (the "Act") with respect to the deductibility of the commissions or other amounts paid to the assistant in the normal course of business.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
Generally, the determination of whether a real estate agent is entitled to deduct the cost of a substitute or assistant for income tax purposes and whether that cost is reasonable, can only be resolved on a case-by-case basis after a review of all the relevant facts.
Where the real estate agent is an employee who receives commission income, paragraph 8(1)(f) of the Act allows a deduction for reasonable expenses that the employee must pay under the contract of employment to earn the employment income. Accordingly, if the amount paid to a substitute or assistant by a commission sales employee was expended to earn employment income and is reasonable, it would generally be deductible under paragraph 8(1)(f) of the Act. Please note that employees must obtain form T2200 signed by their employer certifying that the employee is required to pay his or her own expenses.
Similarly, where a real estate agent is an independent contractor and incurs reasonable costs for an assistant for the purpose of gaining or producing income from the real estate business, the outlay or expense made or incurred by the real estate agent will likely be deductible in computing the income or loss from that business.
We trust this information meets your needs at the current time.
Yours truly,
John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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