What Tax Deductions Can Commission Employees Claim?

As a commission employee, you are paid differently, which means the way you file taxes - and claim expenditures - is different as well.

Certain tax deductions are often available to commission employees that are not available to salaried employees. This is because commission employees are frequently compelled to pay additional expenses that are not needed of salaried staff.

Who Does the CRA Count as a Commission Employee?

A commission employee earns a portion of their salary based on sales or another type of achievement. To be considered for a commission position, you must meet all of the following requirements:

• You must cover some of your own expenses as part of your employment contract. If you do not have a contract, you may not be considered a commission employee, but a freelancer instead, meaning that you will have to approach your taxes differently. The best way to determine this, if you are unsure, is to consult with an accountant.
• In most cases, you will be expected to work outside your employer’s office. This does not mean that you never go into that office, just that you spend large portions of your working time outside it.
• You are paid commissions on a fraction or all of your earnings, depending on the volume of sales or the relationships you have established.
• You don’t get any non-taxable travel benefits, such as a kilometer allowance.
• Your employer completes and signs a form T2200, Declaration of Conditions of Employment, which you receive once a year.

The most obvious example of a commission employee is an outside salesperson. These are the folks who spend most of their time out of the office and whose income largely depends on whether they make sales.

As outside sales has changed in the way they are conducted, you may still be a commissioned employee if you are conducting sales pitches virtually. There has, of course, been an increase in these activities since the onset of the COVID-19 pandemic and while that is receding, some businesses are changing their operations on a permanent basis to include more virtual work. So again, if you are unsure if you would be classed as a commission employee by the CRA for the 2021 tax year asking an accountant for advice may be the best way to go.

What Kinds of Expenses Can Be Reimbursed?

When filing your personal income tax return, you can claim a number of expenditures as a commission employee on Form T777, Statement of Employment Expenses. Accounting fees, legal fees, and the monies you personally paid for business cards, promotional gifts, cellphones, and computers are all common examples of these expenses.

• You can recover a percentage of the expenditures connected with work-related transportation if you use your own car for work. Fuel, maintenance, insurance, registration fees, parking, and any interest or leasing payments are all included in these car expenses.
• You can deduct 50% of the amount you spend on food, beverages, tickets, and admission fees for an event as entertainment expenses if you are attending events with a prospect or client that is solely for the purpose of attempting to close a sale.
• You can also claim food and beverage expenses if you are compelled to be away from the office for more than 12 hours at a time. These expenses are for meals for yourself, not for entertaining a customer, and they are also subject to the 50% rule.

Another valuable benefit is the option to deduct expenses for working from home. Employees on commission can claim expenses that regular salary employees cannot:

• Golf club and membership fees
• Promotions and advertising – including things like social media management help
• Fees for accounting services (just another reason to work with an accountant)
• Home insurance costs if you will claim home office expenses
• Loan interest if you use your own vehicle for work

How Do You Need to ‘Prove Expenses’ to the CRA?

All of your claims made on your tax return must be backed up by records. All receipts, canceled checks, invoices, credit card bills, and other paperwork that verifies the amounts you claim are included. The receipts must include the date of purchase, your name and address, and the seller’s name and address. They must also include a detailed description of the goods or service acquired, as well as any applicable GST/HST details.

You won’t need to have all these sent in to the CRA when you file your taxes, and they may never ask to see them. However, if your tax return is selected for further review the CRA will want to see them, so keeping them on file (for at least six years) is a must.

Any vehicle expenses you claim may call for more records. Any car expenses must be accompanied by a kilometer log detailing the total number of kilometers you drove for work during the year. Before and after you travel, each log entry should include your odometer reading.

Your employment kilometers are calculated as a percentage of total kilometers driven, and this percentage is used to decide how much of your car expenditures you can claim. Your kilometer log and automotive maintenance receipts are not required to be submitted with your tax return. You must, however, retain all of them on file in case you are re-evaluated at a later time.

There is of course a caveat to all of this: if some of these expenses have been reimbursed by your employer, you cannot claim them again at tax time.

Need help with your taxes this year as a commissioned employee? Contact us, we’ll be happy to make sure that everything is filed correctly and that you claim back all the money you legally can.