23 July 2003 Internal T.I. 2003-0028517 - 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.

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: Follow-up inquiry to 2003-000908. Issue in this inquiry is whether the professional corporation or individual shareholder is carrying on the business of mutual fund sales.

Position: No conclusive evidence. However, the written agreement between the individual, company and dealer, may support the viewpoint that the company is carrying on the business.

Reasons: The facts as presented.

		July 23, 2003

Mr. Serge Vallieres	Income Tax Rulings Directorate
	Ottawa Tax Services Office	Randy Hewlett, B.Comm
	Verification & Enforcement Division	613-957-8973

		2003-002851

Re: Mutual Fund Sales Reported By A Professional Corporation

We are writing in response to your memorandum of July 4, 2003, wherein you inquire further to our letter of April 14, 2003 (our file 2003-000908), issued in response to your inquiry of March 18, 2003, concerning the above-noted issue.

Your initial inquiry related to an ongoing audit of XXXXXXXXXX ("ACO") and its sole-shareholder, XXXXXXXXXX ("Mr. A"). ACO reported the commission income that was derived from the sale of mutual funds made by Mr. A while trading through XXXXXXXXXX (the "Dealer".) On the basis of the CCRA's position in Income Tax Technical News 22 (ITN 22) on this issue, you requested our confirmation that ACO was legally precluded from reporting the commissions from the sale of mutual funds. We indicated that the position outlined in ITN 22 should not be used in support of an assessment in this situation, on that basis that there was no conclusive evidence that ACO was not carrying on the business, or was legally or contractually precluded from doing so.

In your recent letter, you presented additional information which you feel supports the position that ACO is not carrying on the business. We have reviewed the information and do not consider it conclusive in this regard. It is our opinion that the written agreement between the Dealer, Mr. A, and ACO, which formalizes ACO's involvement in this arrangement, lends significant support to the taxpayers' position. In addition, there are a number of other factors that also support the taxpayers' position, such as the fact that the commissions earned on the mutual fund sales are deposited into ACO's bank account by the Dealer, and the fact that Mr. A's assistant, who the Dealer recognizes as an authorized representative to trade on its behalf, is paid a salary by ACO.

We trust our comments are of assistance. For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 2 -