Principal Issues: [TaxInterpretations translation] Are the premiums paid by an insurance broker for policies owned by the broker and whose insured persons are members of the broker's family deductible in computing the broker's business income?
Position: No, because these are personal expenses.
Reasons: Income Tax Act.
June 12, 2009
Shawinigan-South Tax Services Office Headquarters Business and Partnerships Division
Attention: Martine Bérubé François Bordeleau, Advocate
2009-032451
Deductibility of premiums related to a life insurance policy
This is further to your email of May 28, 2009 requesting our opinion on the deductibility of premiums related to the purchase of life insurance policies by a financial products broker.
More specifically, you raised the situation where a broker - a self-employed worker - receives commissions for the sale of life insurance policies that he takes out for his own benefit. The persons insured under these policies are members of the broker's family. You indicated that the beneficiaries of the policies are either the broker or his spouse.
The broker is responsible for the payment of premiums in connection with the purchase of these life insurance policies. You would therefore like to know the tax treatment of these premiums, in particular, whether they are deductible in computing his income from a business.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Our Comments
Where an insurance broker, who is self-employed, receives a commission from the sale of a life insurance policy owned by him, the Canada Revenue Agency ("CRA") is generally of the opinion that this income does not have to be included in the calculation of the broker's business income as long as the broker is required to pay the premiums relating to the policy. Our position is the same in the case of a critical illness insurance policy.
Notwithstanding our position stated above, we are of the view that in certain situations the commission received or receivable could be considered taxable. In our view, this would include a situation where the amount of the commission is substantial. In this regard, we refer you to paragraph 2 of Interpretation Bulletin IT-470R, which states:
… [T]here may well be a point beyond which the "privilege" concept is no longer valid, i.e., the advantage to the employee is, in fact, a form of extra remuneration. Then the "fringe benefit" is viewed as a taxable benefit.
This determination is a factual one that must be resolved in the light of all the circumstances of a particular situation. The amount of insurance coverage and the frequency of transactions, taking into account the particular context of the given situation, compared with what a family would carry out, are other factors to be assessed when making this determination.
In the situation you described, you indicated that the broker has purchased life insurance policies from three subscribers. Although you are uncertain as to the accuracy of the amounts of commissions received and the amounts of premiums paid, our analysis will be based on the following amounts:
|
Commissions received |
Premiums paid |
|
|
Subscriber A |
$XXXXXXXXXX |
$XXXXXXXXXX |
|
Subscriber B |
$XXXXXXXXXX |
$XXXXXXXXXX |
|
Subscriber C |
$XXXXXXXXXX |
$XXXXXXXXXX |
Thus, because of the amounts of commissions received, it is likely that they will have to be included in the broker's income for the year in which they are received.
With respect to premiums that are paid in respect of life insurance policies that a broker underwrites for his own benefit, the insured persons being members of the broker's family, the CRA is of the view that such premiums are a personal expense that is not deductible under paragraph 18(1)(h).
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada 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, the electronic library version can be provided. Alternatively, the client 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 Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.