Merchandise discounts and commissions from personal purchases

Non-taxable situation

Under the CRA's administrative policy, if you normally sell merchandise to your employees at a discount, the benefit is generally not taxable.

This does not apply to the exceptions below.

Taxable situation

If you provide your employee with discounts on merchandise, the benefit is taxable in all of the following situations:

• You make a special arrangement with a particular employee or a select group of employees to buy merchandise at a discount
• You make an arrangement that allows an employee to buy merchandise (other than old or soiled merchandise) for less than your cost
• You make a reciprocal arrangement with one or more other employers so that employees of one employer can buy merchandise at a discount from another employer

If you determine the benefit is taxable or you sell merchandise to your employees below cost, see: Calculate the value of the benefit.

The CRA's administrative policy does not apply to discounts on services. If you provide your employee with discounts on services, it is a taxable benefit.

To calculate the benefit, see: Calculate the value of the benefit.

Non-taxable situation

Under the CRA's administrative policy, commissions that sales employees receive on merchandise they buy for personal use are not taxable.

Similarly, when a life insurance salesperson acquires a life insurance policy, the commission received by that salesperson on that policy is not taxable if all of the following apply:

• The policy has no investment component or business use
• The employee owns the policy and makes the required premium payments
• The income received is not significant

Taxable situation

If the commissions received by life insurance salespeople do not meet all of the conditions above, the commissions are taxable.

To calculate the benefit, see: Calculate the value of the benefit.

The employer sells laptops to the public for $150 each. The employer provides a discount to all of their employees of 35% ($52.50) per laptop. The price paid by an employee per laptop is $97.50. The cost to the employer for each laptop is $40.

The discount received by the employee is not a taxable benefit because the price paid by the employee for the laptop is at least the cost of the employer.

 You do not need to do any calculations.

Employer A sells televisions and has an arrangement with Employer B, a cell phone company, to provide discounts on each other's products of 25%. The employee of B uses the discount to purchase a TV for $300. The undiscounted price of the TV to the public is $400.

The benefit received is a taxable benefit as the discount was received as part of a reciprocal arrangement with another employer where the employees of each receive discounts from the other employer. The taxable benefit is calculated as follows:

• $400 is the fair market value of the television set (undiscounted price)
• minus $300 is the price paid by the employee
• equals $100 is the value of the benefit to be included on the T4 slip

The amounts must be included in the pay period they were received or enjoyed.

The employer is a beauty salon which provides its employees with a 50% discount on nail services. The employee uses this discount on a $60 manicure service.

The discount received by the employee is a taxable benefit as the CRA's administrative policy on merchandise discounts does not apply to discounts on service. The taxable benefit is calculated as follows:

• $60 is the fair market value of the manicure service (undiscounted price)
• minus $30 is the price paid by the employee
• equals $30 is the value of the benefit to be included on the T4 slip

The amounts must be included in the pay period they were received or enjoyed.