28 September 2023 CLHIA Roundtable Q. 2, 2023-0971711C6 - Reimbursement by advisor of policyholder expense

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.

Principal Issues: 1) Would the views set out in document 2010-0359401C6 apply to the payment of a client's accounting fees by a life insurance advisor? 2) Would the tax treatment of the payment of the client's accounting fees by the life insurance advisor be different if the client did not purchase a life insurance policy?

Position: The views set out in document 2010-0359401C6 would apply to the reimbursement of the accounting fees whether or not the client acquired the life insurance policy.

Reasons: Prior positions.

CLHIA Roundtable – September 2023

Question 2 – Reimbursement by Advisor of Policyholder Expense

Background

In CRA technical interpretation 2010-0359401C6 dated May 4, 2010, the Canada Revenue Agency (CRA) was asked to comment on the tax treatment of a cash rebate of commissions paid by a licensed life insurance advisor to a client who purchases a life insurance policy. The CRA indicated as follows:

• the insurance advisor should include the full amount of the sales commission in business income pursuant to subsection 9(1) of the Income Tax Act (Act);
• the insurance advisor can deduct the cash rebate that is paid to the policy purchaser (except as otherwise limited by the Act, e.g., sections 18 and 67 of the Act); and
• the policyholder should include the cash rebate in income pursuant to paragraph 12(1)(x) of the Act.
• In light of this interpretation, we would appreciate your views on the following fact situation:
• Life insurance advisor (Advisor A) has approached a prospective client (Client B) about the purchase of a life insurance policy as part of their estate planning.
• Client B engages an accountant to review the proposed life insurance policy in the context of Client B’s estate plan.
• Client B agrees to acquire a life insurance policy from Advisor A.
• Advisor A agrees to repay Client B for the accounting fees Client B incurred relating to the review of the life insurance policy.

Questions

1. Can the CRA comment on whether the tax treatment of the payment of Client B’s accounting fees by Advisor A would be the same as that set out in CRA technical interpretation 2010-0359401C6?

2. Can the CRA comment on whether the tax treatment of the payment of Client B’s accounting fees by Advisor A would be different if Client B did not proceed to purchase a life insurance policy from Advisor A?

CRA Response

We can confirm that the views expressed in document 2010-0359401C6, as well as document 2008-027138 would apply to Advisor A’s reimbursement of Client B’s accounting fees incurred for the review of the life insurance policy. In this regard, except as otherwise limited by the Act (e.g., section 18 and 67 of the Act), the reimbursement of the accounting fees paid by Advisor A to Client B would generally be deductible under subsection 9(1) of the Act in computing Advisor A’s income from business for the year in which the amount is incurred.

Client B would include the reimbursement in income pursuant to paragraph 12(1)(x) of the Act. We confirm that this tax treatment would also apply if Client B did not acquire the life insurance policy.

Karri Lea Estabrooks
2023-097171
September 28, 2023