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.
XXXXXXXXXX 992313
S. Parnanzone
December 16, 1999
Dear XXXXXXXXXX:
Re : Interpretation Bulletin IT-470R (Consolidated), Employees' Fringe Benefits
This is in reply to your letter of August 24, 1999, and further to your recent telephone conversation with Mr. S. Parnanzone of this office, concerning the tax treatment of commission on the acquisition of segregated funds.
You explained that a segregated fund is an insurance product but is treated differently from the regular insurance polices in that assets are segregated. You stated that an investment in a segregated fund contains guarantees for the purchaser and is creditor-proof. You also indicated that the insurance industry developed segregated funds to compete with mutual funds.
Your question is whether the commission received by a salesperson in purchasing a segregated fund as a personal investment from the employer is exempt from taxation based on the comments dealing with the acquisition of a life insurance policy which are found in paragraph 27 of Interpretation Bulletin IT- 470R (Consolidated), Employees' Fringe Benefits.
The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of assistance to you.
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.
Paragraph 27 of the bulletin states:
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 commission on the acquisition of merchandise and a life insurance policy for the personal use or the personal purpose of the salesperson. Such commission is not taxable. The bulletin's comments do not deal with the commission on products acquired for investment or business purposes (e.g., for resale 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 (e.g., segregated funds), as opposed to for personal protection (e.g., term life insurance policy), is taxable in the hands of the salesperson. We would mention that, in our view, the commission received by a stockbroker on the acquisition of personal investments in securities and mutual funds is taxable in the hands of the stockbroker.
We trust that the forgoing comments are of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content