Realtor Cash-back – Tax implications clarified

yes you can amend
yes you can terminate. the bra is with you and the brokerage. not you and the agent. you can get a release from the bra . if agent refuses, go talk to his /her broker broker of record.

oasis100 wrote: ↑ yes you can amend
yes you can terminate. the bra is with you and the brokerage. not you and the agent. you can get a release from the bra . if agent refuses, go talk to his /her broker broker of record.

well legally speaking, the brokerage is the agent, you cannot call a salesperson or broker an agent.

I am providing cash back to a family member (50%) does this mean I will have to pay tax on the full commission earned? How does this make any sense? I am sure some realtors out there help family purchase a home earn the commission and give back I.e. purchase for a father or a mother, what are the tax implications in these cases? Seems a bit unfair to me as its punishing an agent for helping out a family member.

LIKEWTF wrote: ↑ I am providing cash back to a family member (50%) does this mean I will have to pay tax on the full commission earned? How does this make any sense? I am sure some realtors out there help family purchase a home earn the commission and give back I.e. purchase for a father or a mother, what are the tax implications in these cases? Seems a bit unfair to me as its punishing an agent for helping out a family member.

no. you get your brokerage to issue the rebate.

oasis100 wrote: ↑ no. you get your brokerage to issue the rebate.

Does this mean they will get a T4A issued? Will this be counted as income in their hands?

LIKEWTF wrote: ↑ Does this mean they will get a T4A issued? Will this be counted as income in their hands?

No.

oasis100 wrote: ↑ no. you get your brokerage to issue the rebate.

I will do this for the deal that is expected to close shortly. However there was a deal I did last year and cut a cheque to my father as cash back, is there anything I can do to ensure I won't be taxed on this?

LIKEWTF wrote: ↑ I will do this for the deal that is expected to close shortly. However there was a deal I did last year and cut a cheque to my father as cash back, is there anything I can do to ensure I won't be taxed on this?

I would like to know too.

LIKEWTF wrote: ↑ I will do this for the deal that is expected to close shortly. However there was a deal I did last year and cut a cheque to my father as cash back, is there anything I can do to ensure I won't be taxed on this?

Singh_21 wrote: ↑ I would like to know too.

There are 2 ways to give a rebate - either through your brokerage as oasis100 suggested above, or paying them yourself (via cheque, direct deposit, etc.). Both are acceptable by CRA.

When you file your taxes, you would claim the rebate amount as an expense against your commission income (I put this under 'Other expenses' but you can ask your accountant how you should classify). You only get taxed on your commission income net of expenses you claim (including rebate).

LIKEWTF wrote: ↑ I will do this for the deal that is expected to close shortly. However there was a deal I did last year and cut a cheque to my father as cash back, is there anything I can do to ensure I won't be taxed on this?

Based on my accountant (and why I chose to go through the brokerage issuing the cash-back route) - your tax bracket would be based on what your T4A states, less eligible expenses etc. So if your T4A reflects the total commission earned, you would be taxed on that (less any expenses that your accountant can claim for you)

It also depends on your personal situation - for example, if you're looking to buy a property on your name, you'd have to show specific income in order to be approved for the mortgage you're looking for - in that case, you'd likely be better off showing ALL the earnings on your T4A for approval purposes, vs a reduced amount by cash-back through your brokerage. If you're earning A LOT anyways, then you'd still be good issuing the cash-back through your brokerage.

IMO it's very subjective based on individual situation. Also this is not to be construed as expert accounting/financial advice - please consult your accountant/CPA/CA for that. Good luck

Does an agent need to issue a T4A too if the rebate given is to a client who purchased investment property rather than principal residence? Or just a cheque to owner/client with memo portion of the cheque detailing the property address and cash back?

Singh_21 wrote: ↑ Does an agent need to issue a T4A too if the rebate given is to a client who purchased investment property rather than principal residence? Or just a cheque to owner/client with memo portion of the cheque detailing the property address and cash back?

No T4A needs to be issued. It is the client's responsibility to account for the rebate. Per CRA, they should treat it as a capital item which increases the cost basis for the property, not taxable income. They will get taxed on rental income and capital gains tax at the time of sale.

Still a good idea for you to keep a copy/memo for your notes in case there is an inquiry and CRA wants to see documentation.

Clueless Fox wrote: ↑ No T4A needs to be issued. It is the client's responsibility to account for the rebate. Per CRA, they should treat it as a capital item which increases the cost basis for the property, not taxable income. They will get taxed on rental income and capital gains tax at the time of sale.

Still a good idea for you to keep a copy/memo for your notes in case there is an inquiry and CRA wants to see documentation.

Thank you.

Bought a property for primary residence, closing in April. Commission cash back 50% from realtor written in BRA. How do I ensure realtor brokerage do not issue me a T4A? Thank you!

I will be receiving a cash back cheque in a few weeks. The agent told me their brokerage will issue a T4A next February.

I read above that a T4A doesn't need to be issued. Where do I find out what's the current CRA rule on this?

Lisameow wrote: ↑ I will be receiving a cash back cheque in a few weeks. The agent told me their brokerage will issue a T4A next February.

I read above that a T4A doesn't need to be issued. Where do I find out what's the current CRA rule on this?

CRA will never comment on a tax loophole (that is what this is). That said, I can confirm, as someone with knowledge in the space, that they are well aware this is being done, and have been watching RE for flipping, kickbacks, etc, since the market started heating up again.

It's surreal to me how much misinformation there is surrounding this subject and how little basic understanding there is across the board. @Clueless Fox has done a commendable job distilling this in the most simple terms possible and it's very clear how to handle this, this is NOT a 'loophole'.

The only thing I can add here is that I am of the belief that this is an issue for most because they are trying to process the cashback through their brokerage, which you don't need to do and which is the source of all the implications and misinformation. This is a transaction between realtor and buyer.

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

RichmondCA wrote: ↑ It's surreal to me how much misinformation there is surrounding this subject and how little basic understanding there is across the board. @Clueless Fox has done a commendable job distilling this in the most simple terms possible and it's very clear how to handle this, this is NOT a 'loophole'.

The only thing I can add here is that I am of the belief that this is an issue for most because they are trying to process the cashback through their brokerage, which you don't need to do and which is the source of all the implications and misinformation. This is a transaction between realtor and buyer.

Do you mind clarifying your point about processing the cash back through their Brokerage? My agent is trying to suggest that I will need to take a lower than agreed to rebate amount (net of taxes), or take full amount and be issued a T4a which I will need to pay taxes on myself. Trying to figure out what I should tell my agent.

GBTCNIO wrote: ↑Bought a property for primary residence, closing in April. Commission cash back 50% from realtor written in BRA. How do I ensure realtor brokerage do not issue me a T4A? Thank you!

Just call the brokerage and confirm with them.

Lisameow wrote: ↑I will be receiving a cash back cheque in a few weeks. The agent told me their brokerage will issue a T4A next February.

I read above that a T4A doesn't need to be issued. Where do I find out what's the current CRA rule on this?

kohinoor wrote: ↑ Do you mind clarifying your point about processing the cash back through their Brokerage? My agent is trying to suggest that I will need to take a lower than agreed to rebate amount (net of taxes), or take full amount and be issued a T4a which I will need to pay taxes on myself. Trying to figure out what I should tell my agent.

Irrespective of whether the rebate is coming from the realtor or the brokerage, there is no need for T4A or taking taxes out. I have a link to the ruling in my post that CRA rep referred me to but I'll put it here again: Link. You can refer this to the agent or the brokerage and let them know that you will not be incorporating any T4A in your tax filing. T4A also contains the gross amount of any income received so if you do receive any T4A for the rebate, you can just exclude it from your tax filing. In the event CRA inquires about it, you can refer them to the same link. EDIT: Just to add, if a T4A is issued and CRA does inquire about it, the process of dealing with it can require filing notice of objection and there maybe some back and forth with CRA.

Hope this helps

Clueless Fox wrote: ↑ Just call the brokerage and confirm with them.





Irrespective of whether the rebate is coming from the realtor or the brokerage, there is no need for T4A or taking taxes out. I have a link to the ruling in my post that CRA rep referred me to but I'll put it here again: Link. You can refer this to the agent or the brokerage and let them know that you will not be incorporating any T4A in your tax filing. T4A also contains the gross amount of any income received so if you do receive any T4A for the rebate, you can just exclude it from your tax filing. In the event CRA inquires about it, you can refer them to the same link. EDIT: Just to add, if a T4A is issued and CRA does inquire about it, the process of dealing with it can require filing notice of objection and there maybe some back and forth with CRA.

Hope this helps

it will be a nightmare to fight with CRA, even if you win at the end. wait time to call is crazy these days, and they likely will place you to senior agent and another wait queue.
and to file notice of objection it will take a year to process. you have to prepaid the tax on the amount because T4A is income and their computer will match it against what you file.

simply make sure you wont get T4A save tons of trouble.