Real Estate

Realtor Cash-back – Tax implications clarified

  • Last Updated:
  • Apr 29th, 2020 10:57 am
[OP]
Deal Addict
Nov 22, 2004
1454 posts
496 upvotes

Realtor Cash-back – Tax implications clarified

Hey all,

The question of tax implications has come up several times when it came to cash-back rebates from realtors. So, I called CRA today to specifically ask this and need to provide this update for clarity to all:

For the realtor:
  • Commission rebate is considered a deductible business expense (so long as it was used to earn business, and only applies to people at arm's length - i.e. not family members)

For the clients:
  • If the property is income producing (commercial/rental), then the amount of rebate is subtracted from the cost of the property to create a new adjusted cost base. The onus effectively falls onto the property owner to report this in their taxes.
  • If the property is a principal residence, there are NO TAX IMPLICATIONS, i.e. the amount is not taxable and no T4A needs to be issued.

This comes from a 2012 ruling I was referred to: Business Expense for Real Estate Agent.

Sincere apologies to all for the confusion surrounding this in previous threads. Hope this clarifies for all future transactions.

Cheers
Last edited by Clueless Fox on Nov 21st, 2017 2:53 pm, edited 1 time in total.
Heatware: 9-0-0
Realtor @ Royal LePage United Realty
21 replies
Member
Sep 22, 2014
377 posts
148 upvotes
Ottawa, ON
Would cashback mortgages fall under this category if it was an income producing property?
Deal Addict
Feb 5, 2009
2809 posts
928 upvotes
Newmarket
gerogesin wrote: Would cashback mortgages fall under this category if it was an income producing property?
Yes, except it would affect profit and loss for the year, and not a cost base which was the point of the post by Clueless Fox as it relates to the commissions paid to RE broker on purchase.
Banned
May 31, 2005
298 posts
729 upvotes
Clueless Fox wrote:
For the realtor:
  • Commission rebate is considered a deductible business expense (so long as it was used to earn business, and only applies to people at arm's length - i.e. not family members)
Thanks for the useful info! So would that mean as a realtor, if I earn $20,000 commission and give $5,000 of it back to the client, then I would only claim an income of $15,000? Or would I report the $20,000 as income and then report $5,000 as a tax-deductible expense? Would either way result in the same thing?
Deal Addict
Feb 22, 2007
1939 posts
213 upvotes
Mississauga
dimsumboi wrote: Thanks for the useful info! So would that mean as a realtor, if I earn $20,000 commission and give $5,000 of it back to the client, then I would only claim an income of $15,000? Or would I report the $20,000 as income and then report $5,000 as a tax-deductible expense? Would either way result in the same thing?

Your commission statement from you brokerage would pay you out $20,000 which is what you report as your gross commissions.

Then you would deduct $5k as an expense.

MAKE SURE you pay the rebate by cheque, to the home owners name, and that it can be linked the property that was bought or sold
Deal Addict
Mar 27, 2004
4424 posts
2041 upvotes
Toronto
you would have your brokerage issue the cheque to avoid any issues with taxes. this would also lower the brokerage fee as well. Not sure how your brokerage handles rebates. But if I was giving 5k back. i am only getting brokerage fees taken from the 15k and not the 20k.
Full-time Realtor
Jr. Member
Oct 27, 2018
123 posts
52 upvotes
Clueless Fox wrote: For the clients:
  • If the property is income producing (commercial/rental), then the amount of rebate is subtracted from the cost of the property to create a new adjusted cost base. The onus effectively falls onto the property owner to report this in their taxes.
For the case of income producing property, I think there is an election that you need to file to reduce the cost of the property to create a new adjusted cost base. If the election is not filed, the CRA will include the cash incentive into income.
Member
Feb 13, 2017
273 posts
120 upvotes
Mississauga
Just want to get some background on the matter of rebates provided by the real estate agent. $5000 seems like a steep rebate. Is it normal in this industry to offer rebates in such large amounts? I personally received a closing gift worth a few hundred a couple of years ago, but never imagined such a large amount of rebate. Any input would be appreciated.
Sr. Member
Feb 19, 2019
785 posts
825 upvotes
Stouffville ON
Arias1619 wrote: Just want to get some background on the matter of rebates provided by the real estate agent. $5000 seems like a steep rebate. Is it normal in this industry to offer rebates in such large amounts? I personally received a closing gift worth a few hundred a couple of years ago, but never imagined such a large amount of rebate. Any input would be appreciated.
It's not an industry standard but some realtors [...] offer significant rebates, often the rebate is a percentage of commission received and can even exceed $5K, the dollar amount will depend on the agreement between the buyer and agent, purchase price of the house, is the rebate percentage or set amount etc. The rebates should be in the contract to avoid misunderstandings.
Last edited by Mars2012 on Mar 29th, 2020 10:21 am, edited 1 time in total.
Reason: not allowed
Full Time and Full Service Realtor
Member
Feb 13, 2017
273 posts
120 upvotes
Mississauga
Thank you, this is helpful.
senasena wrote: It's not an industry standard but some realtors [...] offer significant rebates, often the rebate is a percentage of commission received and can even exceed $5K, the dollar amount will depend on the agreement between the buyer and agent, purchase price of the house, is the rebate percentage or set amount etc. The rebates should be in the contract to avoid misunderstandings.
Last edited by Mars2012 on Mar 29th, 2020 10:21 am, edited 1 time in total.
Reason: edit in quote
Newbie
Apr 26, 2012
6 posts
1 upvote
NORTH YORK
Hey all, looking for an agent in Toronto with cash back for the following services:

1. I'll find the properties I want to bid on - no research/showings required from you
2. Once a property is identified, work with me to do the offer --> closing, including helping me establish the est market value and bidding strategy

Toronto house, east end (Leslieville/beaches): $2-2.5M.

Please DM me if interested - potential to work together on sale of my existing house as well
Jr. Member
Jul 2, 2018
148 posts
89 upvotes
Clueless Fox wrote: Hey all,

The question of tax implications has come up several times when it came to cash-back rebates from realtors. So, I called CRA today to specifically ask this and need to provide this update for clarity to all:

For the realtor:
  • Commission rebate is considered a deductible business expense (so long as it was used to earn business, and only applies to people at arm's length - i.e. not family members)

For the clients:
  • If the property is income producing (commercial/rental), then the amount of rebate is subtracted from the cost of the property to create a new adjusted cost base. The onus effectively falls onto the property owner to report this in their taxes.
  • If the property is a principal residence, there are NO TAX IMPLICATIONS, i.e. the amount is not taxable and no T4A needs to be issued.

This comes from a 2012 ruling I was referred to: Business Expense for Real Estate Agent.

Sincere apologies to all for the confusion surrounding this in previous threads. Hope this clarifies for all future transactions.

Cheers
Hi,
Sorry to bring back a really old thread but I had a question about tax reporting. I purchased an apartment in 2019 and it is my primary residence. My realtor gave me a cashback but also issued me a T4A this year. How do I report this to CRA. According to your statement, I shouldn't be taxed on this right? But when i put this in my simpletax return my refund decreases which means its taxing me on it. TIA!
Deal Addict
Mar 27, 2004
4424 posts
2041 upvotes
Toronto
Did you get a cheque issused by your realtors brokerage?
There should not have been any tax implications.
Full-time Realtor
[OP]
Deal Addict
Nov 22, 2004
1454 posts
496 upvotes
p2r2tdealslover wrote: Hi,
Sorry to bring back a really old thread but I had a question about tax reporting. I purchased an apartment in 2019 and it is my primary residence. My realtor gave me a cashback but also issued me a T4A this year. How do I report this to CRA. According to your statement, I shouldn't be taxed on this right? But when i put this in my simpletax return my refund decreases which means its taxing me on it. TIA!
I would notify the realtor who issued you the T4A about this and also not report for your taxes. You’re correct, there should be no tax implications.

In the unlikely event of an inquiry from CRA you can prove that your purchase was of a primary residence and show corresponding proof (bills, ID’s, etc). You can refer to the ruling that I was directed to as well.

EDIT: senasena made a great point, definitely do this:
He actually needs to ensure that the issuer cancels the T4A, if the slip is not properly cancelled and he doesn't report he will be re-assessed for taxes owing. He maybe able to prove it is not taxable but it will be a battle, there will be no issues if the slip is cancelled properly.
All the best
Last edited by Clueless Fox on Mar 29th, 2020 3:15 pm, edited 3 times in total.
Heatware: 9-0-0
Realtor @ Royal LePage United Realty

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