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: 1. Whether commission on personal sale or purchase of a home or other real estate is included in income of self-employed real estate agents. 2. Whether amounts are required to be included in total commissions paid to these agents by the broker for the purposes of preparing annual T4A slips.
Position: 1. Yes 2. Yes.
Reasons: Commissions received by a self-employed real estate agent from a real estate broker, arising in connection with the agent's purchase of their own personal residence or their own investment property would be considered commission received in their capacity as a purchasing agent. Likewise, a commission received in connection with the sale of an agent's own investment or personal real property would be considered commission income received in their capacity as a selling agent. The amount, whether received in the form of a direct commission fee or in the form of a reduction of the purchase price of the property, is (section 9) business income. The broker must include the amount in its computation of the total commissions paid, for the purposes of issuing an annual T4A slip to the self-employed real estate agent.
Tim Fitzgerald, CGA
XXXXXXXXXX (519) 973-7999 ext. 6509
2005-014508
November 7, 2005
Dear XXXXXXXXXX:
Re: Commissions received by self-employed real estate agents for personal sale/purchase of principal residence or other property
This is further to your letter of August 3, 2005 wherein you requested clarification from the Canada Revenue Agency (CRA) on the tax treatment of commissions paid to real estate agents on personal transactions received from a real estate broker.
We understand the facts to be as follows:
1. The real estate agents are not employees of the real estate broker but operate as self-employed contractors performing real estate purchase/selling agent services to earn commission income.
2. In order to meet the requirements of the governing provincial real estate body (such as the Real Estate Counsel of Ontario) these self-employed real estate agents affiliate themselves with a real estate broker, who is licensed to manage trust deposits and make disbursements to parties to real estate transactions.
3. For these trust management services and per the negotiated contract with the agent, the broker retains a portion of the agent's gross commission (for example 20% of the gross commission) and pays out the residual or net amount of the agent's commission to the agent.
4. On an annual basis, the real estate broker issues a T4A to each such affiliated/self-employed agent, reflecting total commissions paid out to that agent.
5. A self-employed real estate agent who purchases their own principal residence or an investment property can choose to receive either his or her commission or forgo their entitlement to a commission in exchange for an equivalent reduction to the selling price of the property.
6. A self-employed real estate agent that sells their own investment or personal property and receives a commission.
For the purposes of the real estate broker's preparation of the annual T4As, you have asked us to express our views with regard to the income tax treatment of these commissions in situations where the self-employed real estate agent
1. Chooses to receive a commission or
2. Chooses to forgo the commission and receive an equivalent reduction to the property's purchase price.
Information Circular 70-6R5 explains the processes of an advanced income tax ruling and the fees charged for such services should you require binding assurance from the Canada Revenue Agency. While the following comments are not binding on the Agency, we trust they will clarify our views on the tax treatment of real estate commissions as they relate to your expressed area of concern.
All references are to the Income Tax Act unless otherwise specified.
We would consider commissions received by a self-employed real estate agent that arise in connection with the agent's purchase of his or her own personal residence or investment property, to be a commission received in his or her capacity as a purchasing agent. Likewise, a commission fee received in connection with the sale of an agent's own investment or personal real property would be considered a commission fee received in his or her capacity as a selling agent.
In our view, the amount whether received in the form of a direct commission fee or in the form of a reduction of the purchase price of the property is (section 9) business income; the broker must include the amount in its computation of the total commissions paid for the purposes of issuing an annual T4A slip to the self-employed real estate agent.
We trust our comments are helpful. If you require further assistance, please contact the undersigned.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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