Discounts on merchandise and commissions from personal purchases

If you sell merchandise to your employee at a discount, the benefit he or she gets from this is not usually considered a taxable benefit.

However, we consider discounts to be taxable in all the following situations:

  • You make a special arrangement with an employee or a 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 discount is taxable or you sell merchandise to your employee below cost, the taxable benefit is the difference between the fair market value of the goods and the price the employees pay.

Commissions that sales employees receive on merchandise they buy for personal use are not a taxable benefit. Similarly, when life insurance salespeople acquire life insurance policies, the commissions they receive are not taxable as long as they own the policies and have to make the required premium payments. This only applies where the income received is not significant and the insurance policy has no investment component or business use.

Note

This policy does not apply to discounts on services.

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