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.
Whether commissions earned by a securities salesperson on transactions involving his or her personal account are taxable or do they fall within the position set out in paragraph 27 of IT-470R.
The bulletin position is restricted to discounts on the acquisition by an employee of the product of the employer at a price above the employer's cost.
XXXXXXXXXX J.A. Szeszycki
July 23, 1996
Re: Taxation of Commissions Received by Employees
Trading on Own Account
This is in reply to your letter of May 13, 1996, in which you requested our views on the taxability of commissions earned by salespersons employed in securities trading, on transactions involving their own accounts.
You made reference in your letter to the position contained in paragraph 27 of IT-470R, "Employees' Fringe Benefits." In particular, you note the example of the life insurance salesperson who acquires a life insurance policy and is not considered taxable on the related commissions received as long as the policy is owned by that salesperson and he or she is obligated to pay the premiums on that policy. In your view, the circumstances of the life insurance salesperson in the example is analogous to those of a commissioned securities salesperson who trades in securities and who buys and sells on his or her own account. It is your conclusion, therefore, that the commissions received by the employee related to his own personal transactions should similarly not be taxable in that employee's hands. On the presumption that we would be in agreement with your view you have asked several questions on whether all or a portion of the commissions would continue to be regarded as non-taxable under specific circumstances.
Paragraph 27 of the interpretation bulletin deals primarily with the practice of allowing employees to acquire merchandise that has been manufactured or acquired by the employer for resale, as part of its normal business activity, at a price below that for which the product is made available to the general consumer. The employee is normally permitted to acquire the product at a discounted price. The bulletin expresses the position that to the extent that the discounted price does not fall below the employer's cost of acquiring (or manufacturing) the product, the cost saving to the employee will not be considered a taxable benefit. Within that context, a life insurance salesperson who purchases the product of the employer, effectively acquires that product at a discount; that is, the normal insurance premium less the sales commission. Consequently, the "discount" will not be considered taxable.
On the other hand, a salesperson employed with a securities trading firm who acquires securities on his own personal account does not acquire the product of the employer. The "product" is acquired in the marketplace (stock exchange) with the brokerage assistance of the employer. Consequently, the position set out in paragraph 27 does not extend to such an employee. Similarly, an employed real estate salesperson who acquires a property through his or her employer firm is not considered to purchase a product of the firm at a discounted price. Such was the conclusion of the court in Grant v. M.N.R. 67 DTC 249 which dealt with a real estate agent in these circumstances.
Since the commissions earned by a salesperson trading securities on his own account are considered taxable in their entirety, the specific questions raised in your correspondence become moot.
We trust our comments will be of assistance to you.
John F. Oulton
Business and Publications Division
Income Tax Rulings and
Policy and Legislation Branch
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