31 July 2000 Internal T.I. 2000-0017597 F - COMMISSION-POLICES D'ASSURANCE-VIE
Principal Issues: [TaxInterpretations translation]
Does paragraph 27 of IT-470R apply to render non-taxable the commissions received by a life insurance salesperson on the purchase of a segregated fund policy or an annuity contract for the salesperson’s own purposes?
Position:
No. The commission is taxable.
Reasons:
At the CALU meeting in May 2000, the Agency stated that this position applies only to life insurance policies acquired for purposes of personal coverage. The acquisition of a segregated fund policy and an annuity contract is for investment purposes.
July 31, 2000
Quebec Tax Services Office Headquarters
Business Audits Nancy Deslandes
(613) 957-8961
M. Jean Valois
2000-001759Commissions paid to a life insurance salesperson on life insurance policies purchased for personal purposes
This is in response to your request of March 28, 2000 in which you asked for our opinion regarding the above subject.
The Facts:
You presented us with a situation where a life insurance salesman acquired a segregated fund policy or an annuity contract and received commissions that he did not include in his income in reliance on paragraph 27 of the Interpretation Bulletin IT-470R, Employee Benefits.
Your Question:
In such circumstances, are the commissions received as a result of the acquisition of such products by a salesperson, who is either an employee or self-employed, taxable or can they be excluded from income in reliance on the position in paragraph 27 of Interpretation Bulletin IT-470R?
Our Comments:
In general, all commissions received by an employee or self-employed worker must be included in the income of each pursuant to subsections 5(1) and 9(1), respectively, of the Income Tax Act (the “Act”). However, in relation to certain specific situations, the Agency has a position that can be found in paragraph 27 of Interpretation Bulletin IT-470R, which reads as follows:
Discounts on Merchandise and Commissions on Sales
Where it is the practice of an employer to sell merchandise to employees at a discount, the benefits that an employee may derive from exercising such a privilege are not normally regarded as taxable benefits. However, this does not extend to an extraordinary arrangement with a particular employee or a select group of employees nor to an arrangement by which an employee is permitted to purchase merchandise (other than old or soiled merchandise) for less than the employer's cost. Furthermore, this treatment does not extend to a reciprocal arrangement between two or more employers whereby the employees of one can exercise such a privilege with another by whom the employees are not employed. A commission received by a sales employee on merchandise acquired for that employee's personal use is not taxable. Similarly, where a life insurance salesperson acquires a life insurance policy, a commission received by that salesperson on that policy is not taxable provided the salesperson owns that policy and is obligated to make the required premium payments thereon.
Thus, although any commission received is generally taxable, the Agency's position is that when a life insurance salesperson purchases a life insurance policy for personal purposes, the commission received from the employer is not taxable. Furthermore, the Agency applies that position to a self-employed worker.
At the Conference for Advanced Life Underwriting last May, the Agency issued certain clarifications regarding its position as set out in paragraph 27 of IT-470R. In particular, it stated that the comments in that Bulletin did not cover commissions received on the purchase of all types of life insurance policies. It also specified that, when an insurance salesperson purchases a life insurance policy for investment or business purposes, the commission they receive is taxable.
It was never intended that the term “life insurance policy” used in interpretation bulletin IT-470R be that of paragraph 138(12). In fact, what was specifically covered was a life insurance policy acquired for the purpose of providing personal coverage.
The tax treatment of commissions received on the purchase of segregated fund policies or annuity contracts should, in our view, be the same as that accorded to commissions received by securities brokers who purchase shares on the stock exchange or mutual funds as a personal investment. Furthermore, by granting similar treatment, the Agency takes into account the similarities that characterize those products, including, among other things, the primary purpose of their acquisition, which is the expectation of a return.
Consequently, the commissions received by a life insurance salesperson as a result of the acquisition of an annuity contract or a segregated fund policy as an investment are taxable to the salesperson.
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. 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 Legislative Access Bank 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 that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
We hope that you find these comments of assistance.
Best regards,
Ghislain Martineau
Acting Manager
Individuals and Businesses Section
Business and Publications Division
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