Principal Issues: [TaxInterpretations translation] (1) What is the tax treatment of a commission received by a self-employed worker who is a financial securities advisor following the sale of various financial products?
(2) If the commission is non-taxable, what are the deadlines for amending a tax return?
Position: (1) A question of fact but generally, a commission received for the sale of life insurance or critical illness insurance is not taxable. However, commissions received on the sale of other financial products are taxable.
(2) The Minister may grant relief for any taxation year that ends 10 years before the calendar year in which the taxpayer's income tax return is filed.
Reasons: The general position is in line with the CRA's administrative position in previous cases.
XXXXXXXXXX 2008-027923 Anne Dagenais November 21, 2008
Dear Sir,
Subject: Commission income of a financial securities advisor and a mutual fund representative
This is further to your email of May 14, 2008 in which you asked our opinion on the tax treatment of a commission that will be received by a self-employed worker (a financial security advisor) for sales of financial products made to himself or herself.
More specifically, you raised various scenarios in which financial securities advisors receive commissions for the sale or renewal of financial products or services that they underwrite for their own benefit. You wish to know the tax treatment of these commissions to the financial securities advisor. You asked whether our position would be the same if such financial products were so-called "joint" products, such as a registered education savings plan, a registered retirement savings plan, a jointly held mutual fund or a joint line of credit.
Finally, to the extent that commissions received in the various scenarios above are not taxable, you wish to know the deadlines for amending a tax return.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Our Comments
The situation you have indicated in your letter appears to be related to an actual situation, which concerns a specific taxpayer. As explained in Information Circular 70-6R5, it is not the practice of the Directorate to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling.
Where a financial security advisor, who is self-employed, receives a commission from the sale of a life insurance policy of which that individual is the owner, the Canada Revenue Agency ("CRA") is generally of the opinion that such revenue is not includible in computing the advisor's business income provided that the advisor is required to pay the premiums related 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.
That determination is a factual one that must be resolved in the light of all the circumstances of a particular situation. The amount of insurance cover 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.
However, commissions received by such a self-employed worker as a result of the sale of mutual funds or mortgage loans for which the individual is the owner must be included in his or her income from a business. This position also applies to the "joint" products described above.
To change a return that you have already sent, you must send a completed Form T1-ADJ, T1 Adjustment Request, or a signed letter providing all the information concerning your request to your Tax Centre. More information is available on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/chngrtrn-eng.html.
The CRA only considers requests for taxation years ending in one of the calendar years preceding that in which you make your request. For example, in 2008, you may be able to request an amendment for the 1998 and subsequent years. Information Circular IC07-1 dated May 31, 2007 provides information regarding the discretionary power of the Minister of National Revenue to grant relief to taxpayers in accordance with the legislative provisions of the Act. These comments are not advance income tax rulings and are not binding on the CRA in respect of any particular factual situation.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.