10 June 2004 External T.I. 2004-0070881E5 - Commissions Paid To Self-Employed Individuals.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether amounts paid to the self-employed individuals are "commissions", and whether self-employed individuals other than real estate and life insurance agents can earn commissions.

Position: The term "commissions" generally refers to amounts earned by a person that are computed with reference to the volume or dollar amount of sales the person makes on behalf of another person. Any person, regardless of his or her profession and who is paid an amount that is calculated on this basis, has earned commissions that are taxable under the Act.

Reasons: The term is not defined in the Act or Regulations.

XXXXXXXXXX Randy Hewlett, B. Comm.

2004-007088
June 10, 2004

Dear XXXXXXXXXX:

Re: Commissions Paid To Self-Employed Individuals

We are writing in response to your letter of March 25, 2004, wherein you requested our opinion on the above-noted issue.

Your inquiry relates to the information reporting and withholding requirements under the Income Tax Act (the "Act") and the Income Tax Regulations (the "Regulations") for a person who pays commissions to self-employed individuals. Your main concern is the extent to which amounts paid to certain self-employed individuals are "commissions". You also inquired whether self-employed individuals other than real estate and life insurance agents can earn commissions.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

The term "commissions" is not defined in the Act or Regulations. In our view, it generally refers to amounts earned by a person that are computed with reference to the volume or dollar amount of sales that person makes on behalf of another person. We are of the view that any person, regardless of his or her profession and who is paid an amount that is calculated on this basis, has earned commissions that are taxable under the Act.

A person who pays commissions to a self-employed individual is not required to withhold income tax from the payment. However, in accordance with section 200 of the Regulations the payer is required to make an information return in prescribed form in respect of the payment. The prescribed information return for payments to self-employed individuals is the T4A Supplementary and Summary Form.

It should be noted that there is a de minimus rule whereby the payer is not required to issue a T4A slip if the payment was $500 or less. However, regardless of whether the payer issues a T4A slip the recipient must report the payments as income. For further information see RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form - 2003, which is available on our website at www.ccra-adrc.gc.ca.

We trust our comments are of assistance.

Yours truly,

Randy Hewlett, B.Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch