18 April 2006 Internal T.I. 2006-0176531I7 - Commission Income Assigned to a Corporation

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: Whether a mutual fund salesperson can assign commission income to a corporation under the Income Tax Act.

Position: Question of fact.

Reasons: There are exceptions to the strict enforcement of the Ontario Securities Act in terms of whether or not the corporation must be registered. The Ontario Securities Commission, in conjunction with certain regulatory bodies, will allow non-registered corporations to have a salesperson trading on its behalf through a registered dealer under certain circumstances.

 								April 18, 2006

	XXXXXXXXXX 						HEADQUARTERS
	Appeals Officer					Kathryn McCarthy, CA
	XXXXXXXXXX  TSO

	Attention: XXXXXXXXXX
								2006-017653

Commission Income Assigned to a Corporation

We are writing in response to your e-mail of March 16, 2006, concerning the above noted subject.

You described a situation where a taxpayer (Mr. A) received a T4A from XXXXXXXXXX for commission income earned from the sale of mutual funds. Mr. A is registered with the Ontario Securities Commission (OSC) and did not report the commission income for income tax purposes. Mr. A provided a letter indicating that he and his employer (a related corporation, ACO) have an arrangement whereby ACO receives and reports all of Mr. A's commission income from XXXXXXXXXX for income tax purposes. Although ACO is not registered with the OSC, ACO is considered to be carrying on the business of selling mutual funds. There is no agreement between Mr. A and XXXXXXXXXX.

You enquired as to whether Mr. A or ACO should report the commission income from the sale of mutual funds under the Income Tax Act.

As discussed in Income Tax Technical News 22, it is the position of the CRA to allow certain professionals to report their commission income through a corporation, where they are not otherwise precluded from assigning such income to the corporation and the corporation is actually carrying on the business. Further, as discussed in internal technical interpretation E2003-0009087, Commission Income Assignment, it is apparent that the OSC does not strictly enforce the registration requirements of the Ontario Securities Act. In particular, the OSC in conjunction with certain regulatory bodies, such as the Mutual Fund Dealers Association of Canada (MFDA), will allow a non-registered corporation to have a salesperson trade securities on its behalf through a registered dealer.

We understand that the MFDA will allow such treatment up to December 31, 2006 in certain provinces. See Member Regulation Notice MR-0002, Payment of Commissions to Non-Registered Entities and MR-0026 - Transition Periods at http://www.mfda.ca/regulation/notices.html, for more information. On this basis, the position of the CRA discussed in the preceding paragraph remains unchanged for certain mutual fund business carried on in Ontario.

We trust our comments will be of assistance to you.

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch