Can I pay my realtor’s commission from the sale proceeds?

Can I pay my realtor’s commission from the sale proceeds?

Can I really pay my realtor’s commission from the sale proceeds — and not lose money on taxes? Read this.

Short answer

Yes. Paying your realtor’s commission from the sale proceeds is standard. The commission is deducted at closing and reduces your net proceeds. That reduction also lowers your taxable capital gain because selling expenses are subtracted from the amount realized. Always confirm details on the closing statement.

How it works — clear and simple

• Listing agreement: you agree a commission percentage or flat fee with your agent.
• Sale closes: the commission is shown on the closing statement (settlement statement / statement of adjustments).
• Title company or lawyer pays the agent from the sale proceeds and disburses the seller’s net.

This is the usual flow in Canada and the U.S. It means you don’t write a separate check to the realtor after closing in most cases.

Tax and financial implications you must know

• Effect on capital gains: Commissions are a selling expense. In both Canada and the U.S., selling expenses reduce the amount realized on the sale, lowering capital gain. (See IRS Publication 523; Canada Revenue Agency guidance on proceeds of disposition.)
• Not an income deduction: For individuals, the commission isn’t deducted from ordinary income. It specifically reduces capital gain on the property sale.
• For primary residence: If you qualify for the principal residence exemption (Canada) or the home sale gain exclusion (U.S.), the commission’s tax effect may be irrelevant because gains are excluded up to limits.
• For rental or business property: The commission lowers proceeds and affects recapture, capital gains, and cost base calculations.
• HST/GST and sales taxes: In Canada, agents charge HST on commission invoices. That tax is collected by the agent and remitted to CRA; it’s usually billed in addition to the commission and shown on invoices/closing paperwork.

Common misconceptions

• “I can’t pay from proceeds.” False. It’s standard practice. The closing agent handles disbursal.
• “Commission is tax-deductible as an expense against salary.” False. It reduces capital gains, not ordinary income.
• “Paying from proceeds avoids paperwork.” No. You still get invoices and a closing statement — keep them.

Practical advice that saves money and stress

• Get a net proceeds estimate early. Know your bottom line before you sign.
• Insist the commission appear on the closing statement. It documents the selling expense for tax purposes.
• Keep invoices and the listing agreement. Your accountant will need them.
• Negotiate commission if the market and agent’s results allow it. Flat-fee or reduced splits are common options.
• If you sell an investment property, consult a tax advisor. Commission affects depreciation recapture and capital gains calculations.

Why this matters and what to do next

This is routine but critical. Incorrect handling changes your tax outcome and net cash. Work with an experienced realtor who puts the commission on the record and explains the tax effect.

Tony Sousa is a trusted local realtor with deep experience in closing, taxes, and net-proceeds planning. For a clear net-proceeds estimate and tax-aware sale plan, contact Tony at tony@sousasells.ca or 416-477-2620. Visit https://www.sousasells.ca for details.