Quote:
Originally Posted by Cecil Terwilliger
Random question if any of the tax experts want to chime in.
How is it determined if commission income is claimed as employment income or as self employed commissions?
If I made a base of $60k and got a T4 but made another $50k in commission, would the commission income generate a T4 or a T4A? How is it determined? Does my employer choose? If it’s T4A, then the employee would claim it a BFS commissions right? But then wouldn’t pay CPP premiums etc on it? And would be able to deduct BFS expenses?
I’m confused as to why some employers pay commissions as employment income and some pay it as self employed commissions. Especially for an employee who earns a base salary as an employee.
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I'm not sure if I fully understand your question... but I'll take a stab at it.
1. Probably the nature of the company and services/type of income they derive and essentially employee vs contractor/self employed. Limited vs full exposure to risk for those they hire to work for them. Employee in theory should never be exposed to a loss. They will always have income. Self employed earns income, but can incur a loss depending on their expenses.
2. Usually your contractual agreement with the company based on how they request the hiring of the expertise. Did they want to hire employees or hire contractors. Did you sign on as an employee or contractor? What is the agreed upon compensation arrangement?
3. Typically T4 box 42 with form T2200 and form T777 for employee or OR T4A Box 20 or Box 48 and form T2125 contractor/self employed based on #2.
4. Employed vs self employed CPP is calculated differently. T4, CPP calculated and already on the slip and max CPP is about $3,755 because you only have to do personal portion and employer pays employer portion. Self employed (ie: T2125 w/ or w/o T4A) is max $7509 because you have to pay both employer and personal portion of CPP. Calculation shows up on line 42100 essentially as a percentage factor of line 12200 and 13500.
5. T4/T777 has limited/restricted deductions. T4A/T2125 has more deductions options available. If you think limited/restrictions are ridiculous, you'd be livid seeing what is allowed for a corporation considered a PSB.
6. Commissions vs self employed is essentially employee vs contractor/self employed. Limited vs full exposure to risk. If you ask HR personnel who know some of the contracts, they'd tell you that self employed often is given a 30% ish plus top up to deal with additional stuff they do themselves because they aren't getting access to the resources of the company. Commissions for employee with base salary is essentially (but not always) like a performance bonus for working harder. Commissions exceeding a "base salary type of amount" for self employed is essentially (but not always) just putting in OT to have more take home pay.