Commission Income Tax
How commission income is taxed in Canada, what commission employees can deduct with a T2200, the TD1X form, and employee vs self-employed agents.
The short version
- Commission paid to an employee is employment income, on your T4, taxed like salary with CPP and EI deducted.
- Commission employees get a wider list of deductions than salaried employees, including advertising, client entertainment (50%), and the property tax and insurance share of a home office. They need a signed T2200 from the employer.
- Most of those expenses can't exceed your commission income for the year. Car interest and depreciation are the exception.
- Example, Ontario: $90,000 of commissions and $14,000 of expenses saves about $4,150 of tax.
- Form TD1X lets you ask your employer to withhold less tax during the year, instead of waiting for a big refund.
Commission Income Tax
Commission pay has a rhythm: a slow month, a big month, and a tax deduction that seems to have been designed by someone on salary. Big cheques get withheld at high rates, the expenses you pay to earn them come out of your own pocket, and the money comes back as a refund the following spring. The rules let commission earners deduct more than most employees, and a one-page form can get your employer to stop over-withholding. Both are underused.
Employee or Self-Employed?
| Commission employee | Self-employed commission earner | |
|---|---|---|
| Typical examples | Car, retail, software and other salespeople on staff | Many real estate agents, insurance and mortgage agents |
| Slip | T4 | T4A box 020 (self-employed commissions) or 048, or none |
| Tax withheld | Yes | No; pay by instalments |
| CPP | Employee half, employer pays the other | Both halves |
| Expenses claimed on | Form T777 with a T2200 | Form T2125 |
| GST/HST | No | Register once over $30,000 |
Self-employed agents: independent contractor taxes, tax instalments and GST/HST registration. Not sure which you are: employee vs contractor.
Paid on commission and paying your own costs?
Tell the assistant your commissions, your employer's T2200 answers, and what you spend on your car, phone, home office and clients. It works out the deduction, the tax saved, and what to put on a TD1X.
What Commission Employees Can Deduct
| Expense | Rule |
|---|---|
| Advertising and promotion | Yes |
| Meals and entertainment with clients | 50%; see meals and entertainment |
| Car expenses | Business share, from a logbook; see vehicle expenses |
| Travel, parking, licences | Yes |
| Cell phone airtime and data | Business share; see phone and internet |
| Home office | Business share of rent or utilities, maintenance, and, unlike salaried staff, property tax and home insurance; see working from home |
| Limit | Total can't exceed commission income, except car interest and CCA |
The form and its conditions: employment expenses. You must normally work away from the employer's place of business, be required to pay your own expenses, and not get a tax-free travel allowance.
Example: Ontario, $90,000 of Commissions
| Amount | |
|---|---|
| Commission income (T4) | $90,000 |
| Car, phone, client meals at 50%, home office, advertising | -$14,000 |
| Tax saved | about $4,150 |
From our 2026 Ontario rules engine. Without a TD1X, most of that comes back as a refund in April. With one, your employer withholds less each pay; see paycheque deductions and the salary calculator.
Commission Tax Tips
- File a TD1X at the start of the year with your estimated commissions and expenses, so withholding fits reality.
- Get the T2200 signed every year. Without it, no deduction, however real the costs.
- Keep a mileage log and receipts; see the mileage log.
- Smooth a big year with an RRSP contribution; see the RRSP tax savings calculator.
- Large one-time payments may be withheld like bonuses; see bonus tax.
Commission Income Questions
How is commission income taxed in Canada?
Commission paid to an employee is employment income, reported on a T4, with income tax, CPP and EI deducted like salary. Commission earned as a self-employed person is business income, reported on form T2125, with no tax withheld.
What expenses can commission employees deduct?
With a signed T2200, they can deduct advertising and promotion, 50% of client meals and entertainment, car and travel costs, cell phone airtime, and a share of home office costs including property tax and insurance. Most of these can’t exceed commission income.
Why is so much tax taken off my commission cheques?
Employers often withhold on commissions as if each cheque were your normal pay, or at bonus rates. Form TD1X lets you report expected commissions and expenses so your employer can withhold a more accurate amount.
Can commission expenses create a loss?
Generally no. Most commission employee expenses are limited to commission income for the year. Car interest and capital cost allowance are not limited this way.
Do real estate agents pay tax as employees or self-employed?
Most real estate agents are self-employed, report on form T2125, pay both halves of CPP, and register for GST/HST once their commissions exceed $30,000.
Sources: CRA, T4044, Employment Expenses; CRA, Form TD1X. Checked October 2026. The example uses our 2026 Ontario engine with basic credits. T4A box numbers can change; follow your slip. Whether an agent is self-employed depends on the contract and facts.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.