CRA treats a broker’s waiver of commission as an inducement payment

Normally, on the purchase by a client of a GIC of a bank, the bank would receive the face amount of the GIC (say, $21,000) and pay a broker a commission of 0.75% (or $157.50). However, where the broker waived the commission, the client would acquire the GIC for $20.842.50.

One might think that the client thus acquired the GIC at a cost of $20.842.50. and would thereby realize a capital gain of $157.50 on maturity.

However, CRA instead characterized the arrangement as one under which the client invested $21,000 in the GIC, of which $20.842.50 came from the client’s own funds and $157.50 came from the commission received by the broker from the bank which it applied to the payment of the balance of the client’s GIC – so that the cost of the GIC to the client was $21,000.

After indicating that the latter amount might otherwise be included in the client’s income under s. 12(1)(x), CRA noted that (assuming the GIC was capital property), the client could make the s. 52(2.1) election to apply the s. 12(1)(x) amount to reduce the ACB of the GIC to $20.842.50.

Neal Armstrong. Summary of Summary of 7 October 2022 APFF Financial Strategies and Instruments Roundtable, Q.10 under s. 12(1)(x).