Principal Issues: [TaxInterpretations translation] What is the extent of the relief in paragraph 27 of IT470R?
Position: Question of fact
Reasons: The general position is consistent with CRA's position in previous cases (see F 2001-0070655 and E 2003-0015615)
FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE
2006 APFF CONFERENCE
Question 12
Scope of relief from paragraph 27 of IT-470R
Referring to Technical Interpretations 2001-0070655E, 9913907E, 9410837, E910350A and E73746 - Employee fringe benefits - Commissions sales, our understanding of the Agency's position with respect to commissions received by self-employed and employed life insurance salespeople is that such commissions would not be taxable if
(a) The life insurance policy was acquired for personal use (regardless of the life of the insured person);
(b) The seller is the owner of the life insurance policy;
(c) The seller is liable to pay the required premiums on that policy; and
(d) The amount of the commission is not substantial.
Question:
(a) Would the acquisition by a life insurance salesperson of a policy on the life of the salesperson’s spouse or children or parents (father and mother), of which the salesperson would be the holder and for which he or she would be required to pay the required premiums in respect of that policy, make the commissions received taxable?
(b) If the answer to (a) is no, would naming the estate (or children) of the person(s) whose life is insured (or a trust for them) as the beneficiary(ies) of the death benefit in the same circumstances make the commissions taxable?
(c) Can we have further clarification on what you mean by acquiring a life insurance policy "for personal use"?
d) Can we have more details on what you mean by an amount of commission that would not be substantial?
CRA Response
We would first like to clarify that the positions outlined in paragraph 27 of Interpretation Bulletin IT-470R (Consolidated) Employees' Fringe Benefits and in technical interpretations F-2001-0070655, F-9913907, 9410837, E910350A and E73746 represent administrative relief that may not apply to all situations. In that regard, we refer you to paragraph 2 of Interpretation Bulletin IT-470 where it is stated that “there may well be a point beyond which the "privilege" concept is no longer valid, i.e., the advantage to the employee is, in fact, a form of extra remuneration.”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 question of fact that must be resolved in light of all the facts and circumstances of a particular situation. The amount of insurance coverage as well as the frequency of transactions in the particular context of the particular situation, as compared to what a family would do, are other factors to be considered in that determination.
Having said that, it is our view that where a seller of life insurance acquires a policy on the life of the seller or the seller's spouse, common-law partner or dependent child and receives a commission on that policy, the commission would generally not be taxable provided the seller holds the policy and is required to pay the premiums on that policy. The fact that someone other than the policy holder is named as the beneficiary of the policy would generally not change this position.
Anne Dagenais
957-2121
October 6, 2006
2006-019716