Discounts on merchandise and commissions on sales

If you sell merchandise to your employees at a discount, the benefit they get from this is not usually considered a taxable benefit.

However, this does not apply:

• to a special arrangement you make with an employee or a group of employees to buy merchandise at a discount;

• to an arrangement that allows an employee to buy merchandise (other than old or soiled merchandise) for less than your cost; or

• when there is a reciprocal arrangement between two or more employers so that employees of one employer can buy merchandise at a discount from another employer.

If you sell merchandise to employees at below cost, the taxable benefit is the difference between the fair market value of the goods and the price the employees pay.

If a taxable benefit arises under any discount arrangement and it is not for an exempt or zero rated supply, include GST/HST in the value of the benefit.

Commissions that sales employees receive on merchandise they buy for personal use are not taxable. Similarly, when life insurance salespeople acquire life insurance policies, the commissions they receive are not taxable as long as they own the policies and have to make the required premium payments.

Payroll deductions
Where the benefit is taxable, it is also pensionable. However, it is not insurable since it is a non-cash benefit. Deduct CPP contributions and income tax, but do not deduct EI premiums.

Reporting the benefit
Report the taxable discounts on merchandise or commissions on sales on a T4 slip, in box 14 "Employment income" and in the "Other information" area under code 40 at the bottom of the slip. For more information, see T4.

Forms and publications

• IT-470, Employees' Fringe Benefits

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