May 5th - 2006

Brokers may set office policy on commissions – with care

It may be possible for a brokerage to set an office policy on commissions and avoid competition issues, but certain steps should be followed.

It may be possible for a brokerage to set an office policy on commissions and avoid competition issues, but certain steps should be followed. And other measures should be taken to retain a salesperson’s independent contractor status in these cases.

That is the gist of guidelines issued by the Canadian Real Estate Association after extensive negotiations with both the Competition Bureau and the Canada Revenue Agency.

Essentially, a brokerage and a salesperson must be considered “principal” and “agent” to fall under the agency exception to the price maintenance section of the Competition Act. While the Competition Bureau has indicated that each situation must be examined separately, at CREA’s urging, they provided guidelines as to when the agency exception would probably apply.

Based on the bureau’s advice, a broker should ensure that brokerage-salesperson contracts clearly state that any listing agreement entered into by the salesperson with a seller legally binds the brokerage to deliver real estate services to the seller.

Also, brokerage-salesperson contracts should state that the salesperson actually has the authority of the brokerage to enter into the listing agreement with the seller on the broker’s behalf at the commission stipulated by the brokerage and included in the listing agreement by the salesperson.

With the implementation of REBBA 2002 the salesperson is expected to sign the listing agreement on behalf of the brokerage. This process makes it essential for the brokerage/salesperson contract to define the salesperson’s authority when signing the agreement.

For additional comfort, CREA advises brokers to have their own lawyers review the brokerage-salesperson contract to ensure that the contract is an agency agreement and incorporates the bureau’s guidelines. Brokers may also seek a binding ruling from the Competition Bureau on a particular contract.

Maintaining independent contractor status
The Canada Revenue Agency (CRA) has historically taken the position that when a broker sets an office policy for commissions, the salesperson could not be an independent contractor for tax purposes if that salesperson paid the brokerage a percentage of commissions for administrative and overhead costs.

After lobbying from CREA, the CRA has relaxed its position and has indicated that it will look at the total relationship between the brokerage and the salesperson when determining if a salesperson is an independent contractor.

The CRA has indicated it will consider a number of factors when determining if a salesperson is an independent contractor. Factors that point to a salesperson being an independent contractor include:

  • The broker exerting limited control over the salesperson,
  • The salesperson being responsible for his or her expenses and being able to hire others,
  • That the salesperson has the opportunity to profit and bears financial risk, and
  • The intention of the broker and salesperson was to establish an independent contractor relationship.

It is more likely that a brokerage will be found to have only limited control over a salesperson if the broker does not set mandatory floor or desk duties and does not require regular reports of daily activity, for instance.

If a salesperson is responsible for paying the cost of his or her tools and equipment – things such as car, phone, advertising and professional dues – this would also be a factor that would point to the salesperson being an independent contractor. The CRA will weigh all of the factors when making their determination. Brokers who wish certainty regarding the tax status of their salespersons should apply to the CRA for a binding ruling.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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