Employment Expenses: Commission Salespersons

Posted on September 22nd, 2026 in Domestic Tax

Salesperson opening hood of white car, showing interested customer. There are red and silver balloons in the background.

A June 17, 2026, Tax Court of Canada case reviewed the taxpayer’s deduction of $86,231 in fees paid to a corporation he controlled against his commission income for the 2014 year. The corporation prepared a business plan intended to increase future sales, with the work subcontracted to the taxpayer’s son. The court also noted that the corporation had non-capital losses of $500,000, meaning that the fee would not attract corporate tax. It was undisputed that the taxpayer’s employer required the preparation of a business plan and that the taxpayer’s remuneration was based on 5% of his employer’s total sales, the bulk of which the taxpayer generated.

The taxpayer was not a shareholder of his employer but was president and reported directly to the shareholders or their representatives.

Taxpayer loses

The court found that, while the employer required the taxpayer to prepare the business plan, the employment contract did not require the taxpayer to hire or pay a third party to prepare it. The court noted that prior jurisprudence states that the contract of employment must require the taxpayer not only to perform a task but also to incur the cost without any reimbursement by the employer. The court also provided the example that a commissioned salesperson cannot deduct the costs of hiring an assistant unless the contract of employment requires the taxpayer to incur the cost.

In addition, to be deductible, an amount must be expended in the year, requiring actual payment rather than merely incurring costs in the year of deduction. As the court concluded that the payment was not made before the end of 2014, this requirement was not met.

The court further noted that, even if the taxpayer met all conditions for deducting costs incurred to earn commission income, the expense was unreasonably high and that the maximum reasonable amount would be $21,558. The court arrived at this amount by finding that both the hours worked and the hourly value for the services were overstated and reduced each by 50%.

Although the deduction was denied for the reasons above, the court found that there was a sufficient tie between the taxpayer’s remuneration and the corporation’s sales, rather than sales made personally, to satisfy the requirement that the taxpayer was remunerated in whole or part by commission. The court also held that the required purpose to earn employment income was met because the expenditure was incurred both to preserve the taxpayer’s employment and to enhance future commission income, even though the benefits of the business plan were expected to arise in later years.

For employment expenses to be deductible against commission income, ensure that the employee is actually required to incur the cost and that it is paid by the employee in the year.

Download

Article originally published in: Tax Tips & Traps 2026 Third Quarter – Issue 155.