In certain provinces, a licensed insurance advisor is permitted to pay a portion of the commission earned as a "rebate" to a client purchasing an insurance policy. Can the purchaser reduce what would otherwise be his or her adjusted cost basis for the policy by the amount of the rebate? CRA stated:
Subsection 148(9) defines the adjusted cost basis of a life insurance policy and includes in variable A "the total of all amounts each of which is the cost of an interest in the policy..." This would include the initial premium paid for the policy. It is our understanding that any rebate paid by the insurance advisor to the policy purchaser would be made independent of the insurance company and would not, in fact, reduce the initial premium paid for the policy. Consequently, the cost of the policy for the purpose of variable A would not be reduced. Variables H through L of the definition of adjusted cost basis reduce the adjusted cost basis in a number of situations; however, none of those situations are applicable to the type of rebate in question.
… The [s. 53(2.1)] election generally allows the taxpayer to elect to reduce an amount that would otherwise be included in income pursuant to paragraph 12(1)(x), by reducing the adjusted cost base of the property in question by the amount so elected pursuant to paragraph 53(2)(s). However, as you indicated, the election does not allow the same treatment to be accorded to the adjusted cost basis of a life insurance policy.