Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether paragraph 27 of IT-470R applies to exempt from taxation the commission received by a salesperson on the acquisition of segregated funds for personal investment.
Position: Commission is taxable.
Reasons: Paragraph 27 of IT-470R does not apply. Purchase of segregated fund is for investment reasons and not for 'personal purpose'. Similar treatment accorded to commission received by stockbrokers purchasing securities for personal investment.
CALU - Conference for Advanced Life Underwriting May 2000
Question 5
Commissions Earned on Personally Owned Policies
The term segregated fund refers to a pool of assets which the insurer holds to back a specified liability (either through a life insurance policy or an annuity contract) to a policyholder or group of policyholders. The return that the policyholder receives varies and is dependent upon the return, net of management fees, which the insurer earned on these segregated assets. As an insurer's segregated fund is offered to policyholders through a life insurance policy or an annuity contract, it is therefore regulated under the insurance legislation of the various jurisdictions. A mutual fund on the other hand is a security, and is regulated as such by the various provincial securities regulators.
Is the commissions received by a salesperson on the acquisition of segregated funds as a personal investment taxable in the hands of the salesperson?
Agency's Response
This question is in effect asking us to reconsider a technical interpretation we issued dated December 16, 1999. When we were first asked to consider this, reference was made to paragraph 27 of IT-470R wherein we say:
A commission received by a sales employee on merchandise acquired for that employee's personal use is not taxable. Similarly, where a life insurance salesperson acquires a life insurance policy, a commission received by that salesperson on that policy is not taxable provided the salesperson owns that policy and is obligated to make the required premium payments thereon. (emphasis added)
The bulletin's comments deal with the Agency's practice concerning the commission on the acquisition of merchandise and a life insurance policy for the personal use or the personal purpose of the salesperson. The bulletin's comments do not apply to the commission on products acquired for investment or business purposes. This latter type of commission is taxable to the salesperson. Accordingly, the commission received by a salesperson on the acquisition of an insurance product mainly for investment purposes, as opposed to for personal protection, is taxable in the hands of the salesperson.
It was never intended that the term life insurance policy used in the bulletin have the technical meaning given to it by subsection 138(12) of the Income Tax Act. Rather, it was intended to refer to life insurance policies acquired for personal protection.
The treatment of taxing the commission in respect of segregated funds is similar to that which, in our view, is to be accorded to the commission received by a stockbroker on the acquisition of personal investments in securities and mutual funds. In according similar treatment, weight is given to the similarities of the two products such as the earning of a rate of return as one of the main reasons for their acquisition.
In our view, the commission received by a salesperson on the acquisition of segregated funds as personal investments is taxable in the hands of the salesperson.
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