Gifts to business client

One of my clients is a real estate agent, and when he finishes a new deal, he gives a gift to the new homeowner. What is the most appropriate field on 2125 to enter this type of expense?

Adv and promo

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I agree with @SmallBizGuy

Separate line: Other Promotions

Think about the reason the realtor gives the gift = to get word of mouth referrals = advertising

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This is where it gets tricky from the ones that I have seen. The realtor usually will issue a T4A to the seller for the $$, which some people have issue with. So another way that I have seen is direct deduction from the sale price, as it’s more an incentive to sell than to advertise

Wow. I have never seen either of these scenarios…The realtor issuing a T4A to the seller. I am surprised the seller is forthcoming with their SIN details.

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Interesting twist to this would be when a real estate agent provides restaurant gift certificates as a closing gift. That gift would be only 50% deductible whereas when they choose to provide a non-meal closing gift, it would be 100% deductible.

And I agree with all the others that it would be advertising/promo. I have a sub-account for closing gifts so that we can track that real cost for the agents.

I was always under the impression that a T4A is for payments related to employment or payments related to self-employment or another entity such as an independent worker who’s not an employee. I wouldn’t think a gift to a client would warrant the issuance of a T4A. I have never seen that happen.

I never done it myself, but I have seen many realtors done it, and it makes sense, when you are giving out thousands, and call it advertising, without an invoice for it?

Out of curiosity, because I have never seen this before, is the amount recorded in box 154 of the T4A?

Have never seen either scenario @jeffliu and have had realtors make significant gifts to clients (non-cash gifts) like new stoves etc on higher-end sales. Perfectly permissible and easy to document (sale doc will usually have delivery address on it which matches the deal info).

Now, where they are paying bird-dog fees (for leads) THAT is different and I’ve advised clients in the past to get receipts or pay by cheque / transfer so that it’s documents. Generally accompanied by a letter or note.

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I agree. If as a seller or buyer my realtor decides to provide me with a gift basket… I should not be expected to include this as income as it was a non solicited thank you gift.

If it is a thank you for a referral, than obviously it is income ( similar to commission).

It would be easy to differentiate the two as the Realtor would have documents to prove whom bought or sold the house in the actual real estate deal as opposed to third party who helped with a lead.

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I am sure there are lots of articles out there on this topic

If it’s a gift certificate (equal to cash), then it can be cashed in by the recipient. It wouldn’t be 50% deductible, rather it would be 100%, simply because it REALLY is advertising and promotions. It is not meals and entertainment–the realtor isn’t taking the client out and paying for dinner. S/he’s giving them a “cash” reward/gift.

Expense is only deductible when it’s for the purpose of earning income, so if you are saying it’s a “Thank you” gift", not for the purpose of getting more business from that customer, then it should be a personal gift, not a business deduction.

So, if the receiver is not reporting it, then the realtor should not be deducting it?

The gifts that I have seen are not significant to rhe receiver; they would hardly be expected to report this - I see $100 gift certificates for Home Depot, etc. However, the realtor may buy 10 or more at a time so it becomes a significant expense and since it is considered advertising/promotions, it is a legitimate expense.

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A “thank you” gift (reasonable in amount and nature) is the very definition of adv and promo and is clearly for the purpose of earning income…maybe not from THAT customer…but from others that MAY be referred due to the good will (not “Goodwill”) generated.

There is not a hard and fast line here and CRA may NOT substitute its judgment for what constitutes a reasonable business decision over that of the taxpayer. (Loads of cases on that point.)

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Of course, we see time after time CRA allowed things that are clearly not allowed under the income tax act, it’s just impossible to check every single receipt. But allowing those, doesn’t mean they are acceptable to CRA.

Every argument that I had with CRA, I always argued, for the client’s benefit, but every allowed deduction, the auditor, always said, “that’s not in compliance with the income tax act, but for the evidence or argument brought up, excepts were made”

When asked if a gift or expense is deductible, shouldn’t be first answer always going to be, it’s based on the fact that if it’s used for the benefit of your company to generate income, then it is deductible, instead of answer yes and no question, without knowing all the facts or intent?

This is a pretty good case if you deal with realtor on a regular basis.

https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/305681/index.do#_ftn19