Commission Tax Method

For the Commission Tax Method to work as designed, the Commission group boxes must be completed on the Quebec Income Tax Data page.

If the Commission group boxes are not completed, the tax calculation process defaults to the Annualized Tax Method.

The following outlines the method that is used in calculating CIT (federal and provincial excluding Quebec) and QIT using the commission tax method.

Note: Any payment that uses the commission tax method is referred to as a "commission payment" for the purpose of this documentation.

This table shows how the system calculates the tax payable (CIT) on a commission payment:

Calculation Step

Calculation Input

Calculation Output

1. Establish the net annual taxable income from the Commission group box on the Canadian Income Tax Data page.

(income reported in the Commission group box) – (expenses reported in the Commission group box)

(after calculation) Annual taxable income.

2. Determine annual taxes payable.

Apply the annualized tax method to the annual taxable income

(after tax calculation) Annual tax payable.

3. Determine pay period taxes payable.

[(commission payment on current cheque) / (income reported in the Canadian Income Tax Data page)] Х annual tax payable

(after calculation) Tax payable on the current commission payment.

Unlike the federal Statement of Commission Income and Expenses For Payroll Tax Deductions (TD1X) that is used to estimate the net annual taxable income amount, the Quebec Statement of Commissions and Expenses For Source Deduction Purposes (TP-1015.R.13.1-V) establishes a ratio to annualize the current cheque's commission payment.

For Quebec provincial tax, the current cheque's commission earnings is annualized using the ratio determined by the income and expenses reported in the Commission group box on the Quebec Income Tax Data page.

This table shows how the system calculates the QIT payable on a commission payment:

Calculation Step

Calculation Input

Calculation Output

1. Derive the ratio to apply to the current cheque's commission earnings amount to calculate annual income.

[(income reported on the Quebec Income Tax Data page) – (expenses reported on the Quebec Income Tax Data page)] / (income reported on the Quebec Income Tax Data page)

(after calculation) Ratio of commissions to be included.

2. Apply the derived ratio against the current cheque's commission payment to determine the annual taxable income.

(ratio of commissions to be included) Х (commission payment on current cheque) Х (annual factor)

(after calculation) Annual taxable income.

3. Determine the QIT payable for the pay period.

Apply the annualized tax method on the annual taxable income

(after tax calculation) Tax payable on the current commission payment.