12 February 2007 External T.I. 2006-0203361E5 - Commission Salesperson Expense Limitation

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: Clarification of allowable claim options for employed commission salesperson

Position: Options clarified

Reasons: N/A

								2006-020336
XXXXXXXXXX 							Jack Szeszycki
(613) 957-8972
February 12, 2007

Dear XXXXXXXXXX:

Re: Expense Limitation for Employee Salespersons

We are responding to your enquiry dated August 29, 2006, wherein you requested clarification as to the amounts deductible by an employed salesperson against income derived from commission sales. We regret the delay encountered in providing a reply.

In your letter you made reference to the explanation provided in Chapter 2 of the guide, Employment Expenses and indicated that the explanation and the example used were unclear in determining which employment expenses were deductible in circumstances where the total expenses exceed the commission income received in the year. We would advise that the explanation and the example used in the guide have since been changed to provide greater clarity in this regard.

You provided your own example, in which a salesperson received total employment income of $30,000, of which $2,000 was earned as commissions. In addition, the individual expended amounts as follows: advertising of $2,200, car expenses for fuel and maintenance of $1,000 and, capital cost allowance and interest on the automobile of $800. You have asked that we clarify, using this example, the allowable claim that would be available to this employee.

Under the provision of paragraph 8(1)(f) of the Income Tax Act ("the Act") the employee could claim the total of expenses paid in the year for the purpose of earning commission income up to the extent of the commission earnings for the year. In your example, that would limit the claim under that paragraph to $2,000. In addition, under the provisions of paragraph 8(1)(j) of the Act, interest paid in respect of the automobile acquired and used for the purpose of earning employment income and capital cost allowance in respect of that automobile would be allowable to the employee, bringing the total allowable claim to $2,800 [$2,000 under paragraph 8(1)(f) + $800 under paragraph 8(1)(j)]. Alternatively, the employee is entitled to by-pass paragraph 8(1)(f) and compute a claim solely for travelling expenses under paragraph 8(1)(h) or motor vehicle expenses under paragraph 8(1)(h.1), provisions which apply to employees generally. A claim under either one of these provisions is not restricted to the amount of commission income received in the year from the employer but it does limit the claim to just those expenses. In some cases, a claim under one of these provisions can be more beneficial to the taxpayer. In your example, the claim would be limited to $1,000 under one of those provisions plus the additional claim under paragraph 8(1)(j) of $800, for a total of $1,800.

For the purpose of this response it is assumed that the individual employee meets the entitlement criteria set out in each of these provisions. In your example, the more beneficial claim is the one computed under paragraphs 8(1)(f ) and (j).

As noted above, the current version of the Employment Expenses guide provides a clearer explanation of the options available to an employee. In addition, the current version of IT-522 is also helpful in explaining the Agency's position in these matters.

We hope our comments are of assistance to you.

Yours truly,

Randy Hewlett
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch