Commission rebates to clients and customers
For information on commission reduction agreements, see the registrar’s bulletin Commission reduction agreements.
Under the Real Estate and Business Brokers Act, 2002 (REBBA 2002), registrants cannot provide any form of compensation to an unregistered third-party for activities that would be considered to be in furtherance of a trade. This restriction is explained in the registrar’s bulletin entitled Referral fees. However, a rebate or similar compensation may be provided to a brokerage’s client or customer (i.e., buyer or seller) that is a party to the trade in question.
It is essential that registrants comply with REBBA 2002 and its regulations no matter what marketing strategy they employ. If a registrant rebates part or all of a commission, they must comply with REBBA 2002. Here are some important issues that registrants should be aware of:
1) Commission arrangements binding on the brokerage
Commission arrangements negotiated by brokers and salespersons are binding on the brokerage. If commission rebates are being offered, the details should be reviewed and approved by the broker of record as all trades are in the name of the brokerage.
2) Commission rebate agreement
A commission agreement with a client or customer must comply with the requirements of sections 11, 13, 14 and 15 of the code of ethics. Keeping written records of all aspects of the transaction, including the rebate, will help protect all parties if a dispute arises. Changing or confirming the commission after the original agreement requires appropriate documentation, presented to the client or customer for signature.
3) Advertising commission rebates
When advertising a commission rebate, the terms of the rebate must be clearly stated. For example, the advertisement must include the amount of the rebate and when it is to be paid. If there are any restrictions, conditions or limitations on the rebate, they must be clearly specified. As with any advertisement, it cannot be false, misleading, or deceptive.
4) Providing rebates may have tax implications
Rebates to customers and clients may be issued in different ways, including:
- the brokerage issuing a payment directly to the customer or client; and
- the salesperson or broker issuing a payment directly to the customer or client.
No matter which method is used, there may be income tax or HST implications. If you are considering offering rebates you should contact the Canada Revenue Agency to determine the tax implications for you, your clients and your customers. You should advise your clients and customers that there may be tax implications and to seek professional advice.
Commission rebates are a legitimate marketing tool and a way for registrants to differentiate themselves in the marketplace. However, registrants have a duty to ensure that the promotion, documentation and delivery of the rebate comply with REBBA 2002. Failure to do so could result in disciplinary action. In addition, brokerages may establish their own policies and rules regarding rebates over and above REBBA 2002 requirements.