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 a self-employed real estate agent deduct incentives paid to buyers as a business expense? Are the incentives paid taxable to the recipients?
Position: Generally expenses are deductible if paid in an arm's length situation and if all the criteria for deductibility under the Act are otherwise met.
Reasons: Similar to other incentives which qualify as marketing expenses.
Andrea Boyle, CGA
March 19, 2012
Re: Business Expense for Real Estate Agent
I am writing in reply to your fax dated January 9, 2012, in which you asked whether a self-employed real estate agent who, having earned a commission on the sale of a home, provides the purchasers of the home with a gift or cash would be able to deduct the expense in computing her income for tax purposes. Additionally you have asked whether the gift or cash received by the purchaser would be taxable to the recipient.
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. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.
A payment will generally be deductible if it is made for the purpose of gaining or producing income from a business, it is not on account of capital, it is not a personal expense, and it is reasonable in the circumstances. Therefore, the cost of the gifts or the cash paid by the real estate agent to purchasers may be deductible as a general business expense if the payments meet these criteria.
If the real estate agent can show that the rebates in the form of gifts or cash were offered for the purpose of gaining or producing income from her business (to increase her sales, for example) then payment of the rebates would likely be deductible in computing her income.
However it should be noted that, depending on the circumstances, an amount would probably not be deductible if it was paid to a non-arm's length purchaser such as a family member of the real estate agent. Such an outlay by a real estate agent could be regarded as a personal expense, the deduction of which would be specifically prohibited by paragraph 18(1)(h).
Receipt by Purchaser
Whether the value of a rebate in the form of a gift or cash paid to a purchaser would be taxable to the purchaser would also depend on the facts and circumstances of each particular sale. More specifically, in the case of the properties sold by a real estate agent, we would say that the following tax treatments would apply:
In most cases the capital cost of a property which the purchaser subsequently uses to earn income from business, property, or office or employment will likely be reduced by the amount of any rebate received.
There will generally be no tax consequences to the purchaser if the property acquired is used by the purchaser for personal purposes, for example if the property is the purchaser's principal residence.
With respect to the issuance of information slips for such rebates, the real estate agent is not required to provide tax receipts to the purchasers as there is no reporting requirement with respect to such income.
We trust that these comments will be of assistance.
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012