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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether financial planners can transfer mutual fund commissions to their corporations
Position: Question of fact. If corporation is carrying on mutual fund sales business, and it is not precluded, either by statute or contractually, from doing so, then commissions could be reported by corporation.
Reasons: Consistent with prior opinions
XXXXXXXXXX 2001-011571
Wayne Antle, CGA
April 11, 2002
Dear XXXXXXXXXX:
Re: Transfer of Mutual Fund Commissions to a Professional Corporation
This is in response to your letter of December 14, 2001, in which you request a ruling on whether mutual fund commissions paid to corporations owned by financial planners can be reported by their corporations, and not the individuals.
As discussed in Information Circular 70-6R4 Advance Income Tax Rulings dated January 29, 2001, we will only consider a ruling request where it is made in respect of a proposed transaction, and it is submitted in the manner set out in this circular. However, we will provide you with the following general comments, which are not binding on the Canada Customs and Revenue Agency ("CCRA").
In order to determine who should properly report the mutual fund commissions, it must be ascertained whether the individual or the corporation is carrying on the mutual fund sales business. As noted in paragraph 1 of Interpretation Bulletin IT-189R2 Corporations Used by Practising Members of Professions, a corporation may be recognized as carrying on a profession unless provincial law or the regulatory body for the profession provides that only individuals may carry on such a business. We clarified our position with respect to insurance agents, mutual fund salespersons, realtors, and other professionals at the 2001 Canadian Tax Foundation-CCRA Round Table discussions, which are reproduced in Income Tax Technical News 22 (ITTN 22"). In response to Question 1 on the topic, Commission Income Transferred to a Corporation, we stated that where such individuals are legally precluded, either by statute or contractually, from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and not their corporations.
Where there is no legal restriction on the transfer of commissions to a corporation, then all of the relevant facts must be reviewed in order to determine whether the individuals, or their corporations are carrying on the mutual fund sales business. A corporation will be recognized as carrying on the business if its activities, and relationship to its employees and clients, are similar to those ordinarily associated with a corporation carrying on business. Please refer to IT-189R2 for examples of such activities.
In the situation presented in your letter, we do not have enough information to conclusively determine who should properly report the commissions. It would be necessary to review all of the relevant facts including the manner in which the business is carried on, the relationship between the clients and the business, any existing contracts entered into by the business, and the relationship between the financial planner and the corporation. If you require further assistance in this regard, you may call or visit the Business Enquiries section of the Toronto West Tax Services Office. Please note that the publications referred to in this letter are available on our website at www.ccra-adrc.gc.ca.
We trust that our comments will be of assistance.
Yours truly
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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