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Commission pay in Canada is taxed one of two ways, and the one you get depends on your work status: employee or self-employed. An employee has income tax, CPP and EI taken off each commission payment and gets a T4. A self-employed agent has nothing taken off and gets a T4A instead.
How is commission taxed when you’re an employee?
Like any other pay. The CRA tells employers to add regular commissions to basic pay and work out the tax withholding on the total. When the amounts jump around from one period to the next, the employer instead uses the method for bonuses and other irregular payments. That’s why a big commission cheque can look over-taxed on the stub. It gets sorted out when you file, so the extra tax withheld in a hot month often comes back as part of your refund.
At year end, an employee’s commissions show on the T4 in box 14, with code 42 for the commission part. If you want to see how a lump of commission behaves, the bonus tax calculator works the same way.
How is commission taxed when you’re self-employed?
Nobody withholds anything. The payer reports what it paid you on a T4A, in box 020 for commissions, and leaves out any GST/HST. You handle the tax and both halves of CPP yourself, which means saving as you go. The tax instalments calculator is the tool for planning that.
| Employee | Self-employed agent | |
|---|---|---|
| Withholding at source | Income tax, CPP, EI | None |
| Year-end slip | T4, box 14 (code 42) | T4A, box 020 |
| Expenses claimed on | Line 22900, with Form T777 | Business income lines |
Not sure which side you’re on? Look at your last year-end slip. A T4 means you were treated as an employee, and a T4A with commissions in box 020 means you were treated as an agent. If the slip doesn’t match how you actually work, the conversation to have is with whoever pays you, and if that doesn’t settle it, with the CRA. Control over your hours, your tools and who you sell to all point toward employee status.
What does a commission plan pay after tax?
Try a plan with $2,000 monthly base pay, 5% on sales up to $100,000 and 8% above that. In a month with $120,000 of sales, the sales commission calculator gives $5,000 on the first $100,000 plus $1,600 on the rest. That’s $6,600 of commission and $8,600 of total pay.
In Ontario, if every month looked like that, you’d take home about $6,366.57 a month. In a weak month with $60,000 of sales, you’d earn $3,000 of commission, $5,000 of total pay and about $3,944.98 net.
Notice the swing. Pay drops by 42% but sales drop by half. The base salary is what keeps the floor up. The tool assumes each period matches the one you enter, so real take-home differs in an uneven year. To see one steady figure, the take-home pay calculator is closer. Smart salespeople budget off the weak month, not the hot one, and treat a big paycheque as a bonus.
Can commission staff deduct their expenses?
Sometimes, and the conditions are strict. The CRA’s page on line 22900, other employment expenses lists them: your contract required you to pay your own expenses, you normally worked away from your employer’s premises, you were paid wholly or partly by commission tied to sales or contracts, and you didn’t receive a non-taxable travel allowance. Your employer also has to complete Form T2200, and you keep it in case the CRA asks.
The limit catches people out. Deductions can’t exceed the commissions you received in the year, except for vehicle interest and capital cost allowance. You list the expenses on Form T777, enter the total on line 22900, and can claim a GST/HST rebate with Form GST370. Tell your employer too, since the CRA says an employee who claims expenses can file a TD1X so that less tax comes off during the year.
What should the payer’s books show?
Keep the two groups apart. Commission paid to employees goes through payroll, with the deductions and the employer’s share remitted to the CRA (the payroll remittance calculator estimates that). Amounts paid to independent agents are a different expense, and agents are paid without payroll deductions.
Write down the split on the agreement, and keep the calculation of each commission. When a dispute or an audit comes, the paper trail is the thing you’ll be asked for. How commissions should be accrued in your financial statements is an accounting question, so ask your accountant.
What happens to commission when someone leaves or a sale falls through?
That’s decided by the sales agreement, not the tax rules, so write it down early. Say what counts as a completed sale, when the commission is earned and what happens if a customer cancels or returns the order. Pay the commission through payroll when it’s earned, and if a later adjustment is needed, record it as its own entry with a note. Surprises over clawbacks cause a lot of friction between commission staff and employers.
The sources behind this page
The withholding, slip and expense rules come from the Canada Revenue Agency‘s pages on commission payments, employment expenses and Form T2200. The pay examples use our 2026 tax data, which we rechecked on 29 September 2026. This is an independent guide, separate from any government body.
Frequently asked questions
Is commission taxed at a higher rate?
Not by a special rate. For employees the CRA has employers add regular commission to basic pay, or use the irregular payment method when amounts vary, and the final tax is settled when you file.
Which slip reports commission?
An employee gets a T4 with commission under code 42 in box 14. A self-employed agent gets a T4A with box 020.
Can I deduct expenses against commission?
If you meet the CRA conditions and your employer completes Form T2200, yes. The deduction can't exceed your commissions for the year, apart from vehicle interest and capital cost allowance.
Where do employee expenses go on the return?
On line 22900, supported by Form T777. Keep the T2200 in case the CRA asks for it.
What is the TD1X used for?
A commission employee who claims expenses gives it to the employer, who then uses the estimated net income figure to work out withholding.
All payroll and salary calculators
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST