Realtor Cash-back – Tax implications clarified

Great thread @Clueless Fox

I second what @RichmondCA said. This is not a “loophole”, this is basic accounting. For those saying “CRA is looking into this” - they can keep looking all they want...on what basis will this be considered income?

As for the T4A issue some people are having. The majority of those issues are likely caused by trying to get the broker to issue the rebate.

If the agent is saying this is a must, they simply have no idea what they’re doing or talking about.

What about if a realtor is buying their own primary residence? Or if a realtor is buying an investment property for himself?

BlackPiano wrote: ↑ What about if a realtor is buying their own primary residence? Or if a realtor is buying an investment property for himself?

The realtor will be issued a T4A from the brokerage because that will be his/her taxable commission income from the purchase.

Clueless Fox wrote: ↑ The realtor will be issued a T4A from the brokerage because that will be his/her taxable commission income from the purchase.

they could do it a few ways:
1) get the money from statement of adjustment by closing lawyer, need to state in the purchase agreement.
2) get the commission from brokage, T4A? rebate doesnt flow through agent;s hand.
3) get the commission from the agent, agent controls if T4A is needed. will be a deduction in their T1/T2 return.

seatiger wrote: ↑ they could do it a few ways:
1) get the money from statement of adjustment by closing lawyer, need to state in the purchase agreement.
2) get the commission from brokage, T4A? rebate doesnt flow through agent;s hand.
3) get the commission from the agent, agent controls if T4A is needed. will be a deduction in their T1/T2 return.

I believe if the money is being received as commission, it will be hard to explain to CRA that it's not an income, but thinking about it some more, 1) can work by treating the commission as a purchase credit, not as a commission paid to the agent - either built into the price of the house or given as a separate payment by the seller to the buyer. Good insight!

Imo you shouldn't ask for commission its agent earning and let him have it. I assume he is selling home for living.

in case you have some cash back agreement then you can either talk to your agent and have him deduct income tax and then pay your cut in cash without T4A or have him issue T4A and give your cut and then you can pay taxes later.

I was doing my taxes and accountant advised I need the clients social insurance number so he can issue out a T4...now my client is worried it will count as income in their hands ...any advice?

LIKEWTF wrote: ↑ I was doing my taxes and accountant advised I need the clients social insurance number so he can issue out a T4...now my client is worried it will count as income in their hands ...any advice?

Your accountant shouldn't need to issue any T4/T4A relating to cash-back rebate. In my OP, there's a link to the ruling that CRA referred me to, you can show that to your accountant.

LIKEWTF wrote: ↑ I was doing my taxes and accountant advised I need the clients social insurance number so he can issue out a T4...now my client is worried it will count as income in their hands ...any advice?

Time for a new accountant.

I understand why the cash back is a major issue for real estate agents.

The problem for the real estate agents is that the cash back is issued by themselves personally and the amounts reported on their T4A would not reflect this. Therefore, they will have to report their revenue as stated on the T4A and claim the cash back as some sort of a business expense, most likely under "other expenses." As these cash backs are usually enormous relative to the total revenue, this will trigger an audit with the CRA. They also have the option to reduce their revenue by the cash back amount but this will also trigger an audit since now the revenue reported will not reconcile with the T4A.

So it makes sense why some agents would want the brokerage to issue the cash back.

This is why I do it through my brokerage.

Newuserid wrote: ↑I understand why the cash back is a major issue for real estate agents.

The problem for the real estate agents is that the cash back is issued by themselves personally and the amounts reported on their T4A would not reflect this. Therefore, they will have to report their revenue as stated on the T4A and claim the cash back as some sort of a business expense, most likely under "other expenses." As these cash backs are usually enormous relative to the total revenue, this will trigger an audit with the CRA. They also have the option to reduce their revenue by the cash back amount but this will also trigger an audit since now the revenue reported will not reconcile with the T4A.

So it makes sense why some agents would want the brokerage to issue the cash back.

oasis100 wrote: ↑ This is why I do it through my brokerage.

I've done it both ways and never had any audit triggered, but if you still want your peace of mind, you can get the brokerage to issue the cash-back. As long as you can provide supporting documents to the CRA (in the event of any inquiry), you'll be fine. In my experience from dealing with CRA, they're not really the bogeyman people make them out to be, but the language in tax guidelines makes things more confusing for people.

Clueless Fox wrote: ↑ I've done it both ways and never had any audit triggered, but if you still want your peace of mind, you can get the brokerage to issue the cash-back. As long as you can provide supporting documents to the CRA (in the event of any inquiry), you'll be fine. In my experience from dealing with CRA, they're not really the bogeyman people make them out to be, but the language in tax guidelines makes things more confusing for people.

It depends on the dollar amounts involved. If your gross commission is $200K and you are claiming $100K under "other expenses" for the cash backs, you are high risk of being selected for an audit.

At the end of the day, if you are a compliant taxpayer and you have proper records, there shouldn't be any issues. But why put yourself at high risk for an audit?

Newuserid wrote: ↑ It depends on the dollar amounts involved. If your gross commission is $200K and you are claiming $100K under "other expenses" for the cash backs, you are high risk of being selected for an audit.

At the end of the day, if you are a compliant taxpayer and you have proper records, there shouldn't be any issues. But why put yourself at high risk for an audit?

I've put amounts in that range in 'Other Expenses' without any issue; however, your point is valid. There's no need to encourage an audit.

I think we need a thread on brokerages that do issue t4s at source. I have inquired with some and so far all of them advised that they do not get involved with rebates. Is this something brokerages are now moving away from? I would like to minimize the chances of being audited and would like to join a reputable firm that allows to do this at source since more and more customers are expecting cashback these days.