What does your T4A slip say?
James Bond, a client of mine, came to me with his annual T4A slip for commission based employees. The client is a realtor with Mi6 Realty.
Until this year, the brokerage has shown on his T4A slip his commission after the brokerage had taken their cut.
This year Mi6 Brokerage, combined the brokerage’s and James’ commission into box 20. This box shows the total income earned during the year.
James claims this amount is incorrect as the client made less than what the T4A slip says. Having said that though, the income tax return asks how much money the client made in 2017.
This information is found on the T4A slip and is reported on the T2125 Statement of Business or Professional Activities.
At the end of the day, it doesn’t matter as James can deduct the cost brokerage’s split as a ‘management fee’ or whatever you want to classify it.
Here is the proof:
Total Commission without the split: Total Commission with the split (assume 70-30 split)
Advertising $ 10,000 $10,000
Brokerage Fee $ 30,000 N/A
Licensing Fees: $ 5,000 $ 5,000
Total Expenses $ 45,000 $15,000
Net Commission $ 55,000 $55,000
The difference between the 2 ways is exactly the same. Although, it would be more accurate if Mi6 brokerage had taken out their split.
Now for HST purposes, let’s take the same illustration:
No Split After Split Brokerage Split
$100,000 $ 70,000 $ 30,000
HST Collected $13,000 ($100,000 *13%) $9,100 (70,000*13%) $3,900 (30,000*13%)
Input tax credits $5,850 (45,000*13%) $1,950 (15,000*13%) $9,100
Total HST owing $7,150 $7,150 ($5,200)
As you can see, there is NO difference in the amount of HST remitting on behalf of the employee. The brokerage gets a refund as the commission split is an input tax credit. Note, the brokerage doesn’t get the full $70,000 as an input tax credit, only a percentage (13%).
The brokerage would normally have other input tax credits to offset the HST collected and this is for illustrative purposes only.
From a transparency point of view, the brokerage should report the true net commission after their share of the commission.
Mathew jazenko is VP of Sales for MRJ Financial Solutions and enjoys helping commission based employees pay less tax. Call Mathew today 289-500-1978 or firstname.lastname@example.org