Discounts on merchandise and commissions from personal purchases

If you sell merchandise to your employee at a discount and you also offer the discount to the general public or to certain groups of the public, the benefit to the employee is not usually considered taxable.

However, we consider discounts to be taxable in all the following situations:

• You make a special arrangement with an employee or a group of employees to buy merchandise at a discount.
• You make an arrangement that allows an employee to buy merchandise (other than old or soiled merchandise) for less than your cost.
• You make a reciprocal arrangement with one or more other employers so that employees of one employer can buy merchandise at a discount from another employer.

If you determine the discount is taxable, the taxable benefit is the difference between the fair market value of the goods and the price the employees pay.

Commissions that sales employees receive on merchandise they buy for personal use are not a taxable benefit. Similarly, when life insurance salespeople acquire life insurance policies, the commissions they receive are not taxable as long as they own the policies and have to make the required premium payments. This only applies where the income received is not significant and the insurance policy has no investment component or business use.

Payroll deductions

Where the benefit is taxable, it is also pensionable. Deduct income tax and CPP contributions.

If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non cash benefit, it is not insurable. Do not deduct EI premiums.

Reporting the benefit

Report the taxable discounts on merchandise or commissions on sales in box 14 "Employment income" and in the "Other information" area under code 40 at the bottom of the T4 slip. For more information, see T4 – Information for employers.

Forms and publications

• Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment

Date modified:

2017-01-30