Section 32

In accordance with Destacamento and Demeterio, CRA found several bases on which a self-employed taxpayer's life insurance sales commissions must be included in income the years they are earned, notwithstanding that the taxpayer would be obligated to return ("chargeback") some or all of a commission if a customer cancelled a policy within the first twelve months:

• The commissions "have the quality of income in the year of receipt" and should be included pursuant to s. 9.
• Even if the commissions are unearned, they must be included in the year received (s. 12(1)(a)) or to offset amounts advanced in respect of life insurance contracts (s. 32(1)(a)).

Chargebacks would be deductible from income, assuming the chargebacks were incurred for the purpose of earning income from a business.

A general insurance broker places professional liability insurance on a "claims-made" basis and the policy is renewed annually. Since the claims activity of any particular policy year of account can run for many years as claims get settled, all commission income is placed in a trust account, with the commission on each policy generally distributed 70% during the year when the annual policy is in force with the remaining 30% deferred and recognized over the subsequent approximate 10 years while claims for that policy year of account are settled. Is the deferral of 30% of the commission income to subsequent years also acceptable for tax purposes? CRA responded:

[T]he continuing coverage after the end of the current year of a risk described in an insurance contract is not a "service" for which a reserve would be available under paragraph 20(1)(m)… . In addition, for…an unearned commission to be subject to paragraph 20(1)(m)…it must be an amount described in paragraph 12(1)(a)…that relates to a binding obligation to provide specific types of client support services after the end of the year. …[S]ervices that might be required in relation to claims under the policies (for example, claims adjusting) would not be eligible since they normally would be contingent amounts…[under] paragraph 18(1)(e)… . Past experience may be a useful factor in establishing a reserve for services that will be rendered after the end of a year.