Skip to main content

Commission Paid to a Corporation: Any Issues?



Consider the successful real estate or insurance agent, the financial product vendor, the area sales representative, or any other person earning commission income. One day they are asked, if they ever considered running their activities through a corporation as opposed to providing the services personally. There are definitely some valuable possibilities, but there are dangers too.

In a July 11, 2017 Technical Interpretation, CRA opined that whether a corporation is actually carrying on a business and earning commission income is a question of fact and requires more than a mere assignment of income.

CRA noted that “if insurance agents, realtors, mutual fund salespersons, or other professionals are legally… precluded from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and cannot be reported through a corporation, regardless of the documentation provided”. Care must be taken to document that it is truly the corporation providing the services and not just an individual. Commission contracts identifying the corporation as the service provider rather than simply the individual would be valuable.

While some professionals earning commission income are legally prohibited from incorporating (due to the provincial/ territorial laws), others may be practically precluded from doing so due to, for example, a refusal by customers or key suppliers to contract with a corporation.

If a corporation does earn commission income, one must ensure that the corporation would not be considered a personal services business (PSB). A PSB is essentially an individual acting as an employee for a third party, but for the presence of their own personal corporation as an intermediary. For example, consider John, an employee of a car manufacturer (CarCo). If John set up a new corporation, had CarCo pay his corporation, but kept on doing the same things under the same terms and conditions as his previous employment contract, he would likely be conducting a PSB. If classified as a PSB, the worker and their corporation could be subject to substantially higher taxes, plus the denial of several types of deductions.

Action Point: Take care when incorporating a business to earn employment-like commissions. Talk to an advisor to determine if it is right for you.


This article is for educational purposes only. As it is impossible to include all situations, circumstances, and exceptions, a further review should be done for your situation. No organization or individual involved in either the preparation or distribution of these articles accepts any contractual, tortious, or any other form of liability for its contents. For any questions please give one of our principals a call at 250-370-2191 (James ext. 2; Richard ext. 7) or visit our website: MyCPAs.ca.

Comments

Popular posts from this blog

Use Government Money for Your Child's Education

The following article is from CPA Canada

The Government of Canada wants to help you save for your child’s post-secondary education. The money could be used for CEGEP, an apprenticeship program, trade school, college or university.  

When you open and deposit money into a Registered Education Savings Plan (RESP) the Government of Canada will add at least 20 cents for every dollar saved; this is the Canada Education Savings Grant.
With $2 a day, or about $700 a year, saved in an RESP for a child’s post-secondary education, the Government of Canada will add at least 20 percent, or $140 a year, to the RESP to help the savings grow faster. The Government of Canada will keep adding the Canada Education Savings Grant to the contributions in an RESP until the child is 17, up to a lifetime limit of $7,200. At $2 a day for 17 years, the savings grow to well over $15,000 when you also include the accumulated interest.
If you think money is too tight to start saving in an RESP, consider this:
With th…

Dying Without a Will: Who Can Manage the Deceased's Tax Affairs?

Where a family member of a deceased individual would like to be recognized by CRA as the person or persons who will manage the tax affairs of the person who died without a last will and testament, they can now do so by completing a CRA Form (Affidavit for intestate situation, Forms RC549 to RC561, with no form for Quebec, and no RC554).
Only certain people can register to manage these affairs. The form lists the priority order for those that may apply to be the representative. If another person ranks higher than the applicant, consent and a signature must be obtained from the higher ranking person(s). The priority order is generally:
Spouse or common-law partnerAdult childrenParentsSiblingsGrandparents CRA aims to process the application within four weeks.


This new procedure comes as welcome relief. Previously, when a person died without a will, the applicant would normally have to go to Court to be appointed as the Administrator. The costs of this process could cause hardship…