What Tax Deductions Can Canadian 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.

For commission-driven professionals, your income fluctuates alongside ambition. While this brings thrilling rewards, it also presents unique financial challenges. But fear not, because hidden within the tax code lies a treasure trove of deductions specifically tailored to your hustling spirit. Claiming these gems can significantly reduce your tax burden and fuel your financial engine.

Think of these deductions as hidden weapons in your arsenal, each one amplifying your earnings and bolstering your entrepreneurial journey. Whether it’s the fuel you pump to chase leads, the technology that empowers your sales pitch, or the home office that serves as your command center, each expense could unlock valuable tax savings.

But navigating the deduction landscape can feel daunting. Worry not, because we’re here to equip you with the knowledge and confidence to claim your rightful tax breaks. Stay tuned as we embark on an exploration of the most relevant deductions for commission-driven professionals. We’ll break down the intricacies of each deduction, offer practical tips for maximizing your claims, and equip you with the ammunition to conquer tax season with finesse.

Remember, claiming deductions is not about exploiting loopholes, but about utilizing the legal framework to your advantage. It’s about recognizing the unique expenses your commission-based journey incurs and ensuring they receive the tax consideration they deserve.

So, sharpen your pencils, sharpen your focus, and prepare to unlock the full potential of your earned income. The path to tax optimization lies before you, and within your grasp lies the power to maximize your rewards and fuel your entrepreneurial fire. Are you ready to unleash the deduction power of commissions? Then read on to learn more.

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 tax year just ending 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.Here are some of the most common examples”

Vehicle Expenses: If using your car for work, claim fuel, maintenance, insurance, registration, parking, and interest or leasing payments.

Entertainment Expenses: You can deduct 50% of costs for food, beverages, and event tickets when entertaining clients for sales purposes.

Meals for Extended Work Hours: If away from the office for over 12 hours, you can claim 50% of your meal expenses.

Home Office Expenses: Unique to commission employees, you can deduct costs like home insurance and a portion of utilities if you have a home office.

Golf Club and Membership Fees: If used for business networking or client meetings, these can be deductible.

Promotional and Advertising Costs: This includes social media management and other marketing expenses.

Accounting Service Fees: Essential for managing these various expenses and ensuring compliance with tax laws.

Loan Interest: If you have a loan for a vehicle used for work, the interest is deductible.

Travel Expenses: If your work requires you to travel, you can deduct expenses like airfare, hotel accommodations, and a portion of your meal expenses during the trip.

Cell Phone and Internet Costs: A percentage of your cell phone and internet bills can be claimed, provided they are used for work-related purposes.

Office Supplies and Equipment: Costs for office supplies, from pens and paper to more significant items like printers and office furniture, can be deductible if used exclusively for work.

Professional Development and Training Costs: Expenses incurred for courses or training directly related to your work can be claimed.

Client Gifts: The cost of gifts purchased for clients can be deductible, subject to certain limitations.

Software Subscriptions and Online Services: Subscriptions for work-related software or online services necessary for your job are deductible.

Postage and Shipping Costs: If you incur expenses for mailing or shipping items for work, these costs can be claimed.

Bank Fees and Interest on Business Accounts: Any bank fees or interest charges on accounts used specifically for business purposes can be deductible.

Workspace Rental Costs: If you rent a workspace or meeting room for work purposes, these costs can be included in your deductions.

It’s important to note that the eligibility and extent of deductions can vary based on individual circumstances and tax laws. Consulting with a knowledgeable accountant like those at K.K. Chartered Professional Accountant can help ensure that you accurately claim all applicable expenses and comply with tax regulations.

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.