Merchandise discounts and commissions from personal purchases
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Calculate payroll deductions and contributions
- Determine if a benefit is taxable
- What is a taxable benefit
- Merchandise discounts and commissions from personal purchases
-
Other taxable benefits
- Motor vehicle – Allowances and reimbursements
- Automobile – Standby charges and operating expense benefits
- Board and lodging
- Cell phone and internet services
- Child care expenses
- Counselling services and tax preparation
- Disability-related employment benefits
- Educational allowances for children
- Employment insurance premium rebate
- Gifts, awards, and long-service awards
- Group term life insurance policies
- Housing or utilities
- Loans and employee debt
- Income Maintenance plans and other insurance plans
- Loyalty or other points programs
- Meals (overtime) or allowances
- Meals – Subsidized
- Medical expenses
- Moving expenses and relocation benefits
- Parking
- Premiums under provincial hospitalization, medical care insurance, and certain Government of Canada plans
- Professional membership dues
- Recreational facilities and club dues
- Registered retirement savings plans (RRSPs)
- Security options
- Social events and hospitality functions
- Spouse's or common-law partner's travelling expenses
- Tax-free savings account (TFSA)
- Tickets
- Tool reimbursements, allowances and rental payments
- Transportation and airline passes
- Transportation to and from home
- Travel assistance benefits paid in a prescribed zone
- Travel expenses
- Uniforms and protective clothing
- Determine the tax treatment of payments other than regular employment income
- How to calculate
- Make corrections before filing
Merchandise discounts and commissions from personal purchases
Content has been updated for clarity, completeness and plain language. No changes were made to the current Canada Revenue Agency (CRA) administrative policy.
On this page
- Determine if the benefit is taxable
- Calculate the value of the benefit
- Withhold payroll deductions and remit GST/HST
- Report the benefit on a slip
- References
Determine if the benefit is taxable
Generally, discounts for merchandise you provide to your employees are a taxable benefit. Depending on your situation, the benefit may not be taxable under the CRA's administrative policy .
Situations
Non-taxable situation
Under the CRA's administrative policy, if you normally sell merchandise to your employees at a discount, the benefit is generally not taxable.
This does not apply to the exceptions below.
Taxable situation
If you provide your employee with discounts on merchandise, the benefit is taxable in all of the following situations:
- You make a special arrangement with a particular employee or a select 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 benefit is taxable or you sell merchandise to your employees below cost, see: Calculate the value of the benefit.
The CRA's administrative policy does not apply to discounts on services. If you provide your employee with discounts on services, it is a taxable benefit.
To calculate the benefit, see: Calculate the value of the benefit.
Non-taxable situation
Under the CRA's administrative policy, commissions that sales employees receive on merchandise they buy for personal use are not taxable.
Similarly, when a life insurance salesperson acquires a life insurance policy, the commission received by that salesperson on that policy is not taxable if all of the following apply:
- The policy has no investment component or business use
- The employee owns the policy and makes the required premium payments
- The income received is not significant
Taxable situation
If the commissions received by life insurance salespeople do not meet all of the conditions above, the commissions are taxable.
To calculate the benefit, see: Calculate the value of the benefit.
Calculate the value of the benefit
If the benefit is taxable, the value of the benefit is equal to the fair market value (FMV) of:
- Goods or services that are taxable
- -less Price the employee has paid
- =equals Value of the benefit to be included on the T4 slip
The employer sells laptops to the public for $150 each. The employer provides a discount to all of their employees of 35% ($52.50) per laptop. The price paid by an employee per laptop is $97.50. The cost to the employer for each laptop is $40.
The discount received by the employee is not a taxable benefit because the price paid by the employee for the laptop is at least the cost of the employer.
You do not need to do any calculations.
Employer A sells televisions and has an arrangement with Employer B, a cell phone company, to provide discounts on each other's products of 25%. The employee of B uses the discount to purchase a TV for $300. The undiscounted price of the TV to the public is $400.
The benefit received is a taxable benefit as the discount was received as part of a reciprocal arrangement with another employer where the employees of each receive discounts from the other employer. The taxable benefit is calculated as follows:
- $400 is the fair market value of the television set (undiscounted price)
- minus $300 is the price paid by the employee
- equals $100 is the value of the benefit to be included on the T4 slip
The amounts must be included in the pay period they were received or enjoyed.
The employer is a beauty salon which provides its employees with a 50% discount on nail services. The employee uses this discount on a $60 manicure service.
The discount received by the employee is a taxable benefit as the CRA's administrative policy on merchandise discounts does not apply to discounts on service. The taxable benefit is calculated as follows:
- $60 is the fair market value of the manicure service (undiscounted price)
- minus $30 is the price paid by the employee
- equals $30 is the value of the benefit to be included on the T4 slip
The amounts must be included in the pay period they were received or enjoyed.
Withhold payroll deductions and remit GST/HST
The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .
You must withhold the following deductions.
-
Non-cash and near-cash: Option 1
Withhold:
- Income tax
- CPP
- EI (do not withhold)
Remit:
- GST/HST in certain situations
-
Cash: Option 2
Withhold:
- Income tax
- CPP
- EI
Do not remit:
- GST/HST
The amounts must be included in the pay period they were received or enjoyed.
Learn how to calculate deductions and the GST/HST to remit on benefits: How to calculate – Calculate payroll deductions and contributions.
Report the benefit on a slip
If the benefit is taxable, you must report the following amounts on the T4 slip.
-
Non-cash and near-cash: Option 1
Report on:
- Box 14 – Employment Income
- Box 26 – CPP/QPP pensionable earnings
- Code 40 – Other Information
-
Cash: Option 2
Report on:
- Box 14 – Employment Income
- Box 24 – EI insurable earnings
- Box 26 – CPP/QPP pensionable earnings
- Code 40 – Other Information
Learn how to report the benefit on a slip: Fill out the slips and summaries – File information returns (slips and summaries).
Do not include commissions for personal purchases in box 42 (Employment Commissions).
References
Legislation
- ITA: 5(1)
- Income from office or employment
- ITA: 6
- Amounts to be included as income from office or employment
- ITA: 6(1)(a)
- Value of any benefit is to be included as income from office or employment
- ITA: 6(1)(b)
- Allowance for any purpose
- CPP: 12(1)
- Amount of contributory salary and wages
- ETA: 173
- Taxable benefit is considered a supply for GST/HST purposes
- IECPR: 2(1)
- Amount of insurable earnings
- IECPR: 2(3)
- Earnings from insurable employment
- IECPR: 2(3)(a.1)
- Earnings from insurable employment – amount excluded as income under 6(1)(a) or (b), 6(6) or (16) of the ITA
What is the CRA's administrative policy for the purpose of taxable benefits
Cash
Near-cash
Non-cash
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- Date modified:
- 2025-01-09