27 October 2000 Internal T.I. 2000-0047657 - TRANSFERS OF RIGHTS TO INCOME

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: Are mutual fund and insurance commissions earned by and paid to an individual and subsequently assigned to and reported by a non-arm's length corporation included in the income of the individual pursuant to subsection 56(4) of the Income Tax Act?

Position: Yes

Reasons: We have previously indicated in 9619975 that 56(4) applies to real estate salespeople in BC who assign their commissions to their corporations. We have also indicated in 982417 that the commissions earned by an individual salesperson of mutual funds in Ontario should be reported by the salesperson and not the corporation to which the commissions are assigned. A salesperson of mutual funds in Ontario must by law be an individual.

		October 27, 2000

	Toronto West Tax Services Office	HEADQUARTERS
	Munawar Merchant	Jacques E. Grisé
	Small and Medium Business	957-2059
	   Audit Section Manager
		2000-004765

Transfers of Rights to Income

This is in reply to your memorandum of September 19, 2000 requesting clarification on whether mutual fund and insurance commissions earned by and paid to an individual and subsequently assigned to and reported by a non-arm's length corporation, should be included in the income of the individual pursuant to subsection 56(4) of the Income Tax Act.

You currently have situations where mutual fund and insurance salespeople are earning commission income in their own name due to provincial legislation and subsequently assigning this income to non-arm's length corporations. The corporations report the commission revenues and flow out either management fees or dividends to the shareholders after taking expenses. In some cases the corporations use non-December 31 year ends, to defer the payment of management fees. Also, some of the corporations pay out little or no management fees taking advantage of the small business deduction and retaining the income for future dividend payments.

We agree with your opinion that the commission income assigned to a corporation in the above circumstances should be included in the income of the individual mutual fund and insurance salespeople.

We hope our comments are helpful.

John Oulton
Manager
Business, Property and Employment
Income Section III
Business and Publications Division
Income Tax Rulings Directorate

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