Principal Issues: [TaxInterpretations translation] In a given situation where a taxpayer is required to repay an amount of commission to the taxpayer’s employer, does the employer have to issue an amended T4 for the taxation year in which the commission was paid to reduce the amounts paid as remuneration to the taxpayer or does the correction have to be made in the subsequent year's income tax return?
Position: Subject to meeting all of the requirements of subparagraphs 8(1)(f)(i) to (iv), paragraph 8(1)(f) would permit a taxpayer to deduct the amount of commissions repaid in computing the taxpayer's income for the taxation year in which they were repaid from an office or employment as an amount that the taxpayer spent in that year to earn that income.
Reasons: Legislative analysis.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 43
Reimbursement of commissions
Serviceco is a corporation that employs salespeople whose compensation consists of a base salary and a percentage of sales made by them. Mr. X is a salesperson employed by Serviceco.
In 2008, Mr. X entered into a sales agreement in the amount of one million dollars ($1,000,000) (the "Agreement") for which Serviceco paid him, in December 2008, a commission totalling eighty thousand dollars ($80,000). In April 2009, the Contract was cancelled.
In accordance with Serviceco's policy, the corporation asked Mr. X to reimburse it for the $80,000 commission. Therefore, Mr. X repaid Serviceco the amount of $80,000 in the 2009 taxation year.
Questions to the CRA
(a) Should Serviceco issue an amended T4 for the 2008 year reducing the amounts paid as compensation to Mr. X by $80,000 or should the correction be made in the 2009 tax returns of Serviceco and Mr. X?
(b) If the latter, please tell us by virtue of which provisions of the Act Mr. X and Serviceco will be able to take into account the $80,000 repaid by Mr. X?
CRA Response
Under subsection 5(1), a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year.
If amounts so received are in the nature of income in the year they are received, the T4 Statement of Remuneration Paid in respect of those amounts cannot be amended since the amounts will actually have been earned in that taxation year.
However, where a taxpayer derives, for a taxation year, income from an office or employment, the taxpayer may deduct certain amounts in computing that income under subsection 8(1). Subsection 8(2), on the other hand, provides that only amounts under section 8 are deductible in computing a taxpayer's income for a taxation year from an office or employment.
In this situation, paragraph 8(1)(f) could allow the taxpayer to deduct the amount of commissions repaid in 2009 in computing the taxpayer's income for the 2009 taxation year from an office or employment as an amount spent in 2009 to earn that income, provided all the requirements of subparagraphs 8(1)(f)(i) to (iv) are satisfied.
Isabelle Landry
(450) 623-0193
October 8, 2010
2010-037348.