(a)
Regarding what is a commission, CRA noted that Rio Tinto had stated that this term refers to “an amount calculated on a percentage basis, but went on to state:
The fact that a commission is an amount calculated by reference to a percentage does not mean that any form of percentage-based remuneration satisfies that definition or that any form of remuneration determined otherwise than by reference to a percentage is deductible pursuant to paragraph 20(1)(bb).
(b)
Does CRA still maintain its position in 9017855, that where a fee is paid to the taxpayer’s securities dealer or investment advisor allowing the taxpayer to make a specified number of trades with no additional charge until the threshold was exceeded, the taxpayer must determine the fair market value ("FMV") of the advice, administration and management services received, and only the excess is considered commissions that are therefore not deductible under s. 20(1)(bb)? Before directly responding, CRA noted that “in order for an amount paid to a securities dealer to be deductible pursuant to paragraph 20(1)(bb), the principal business activity of the securities dealer should at a minimum include the provision of services in respect of the administration or management of securities,” and then stated:
In such circumstances, it is the CRA's view, based on the Rio Tinto Alcan decisions, that it is not appropriate to determine the FMV of advisory, administrative or management services. … [S]uch fees would be fully deductible pursuant to paragraph 20(1)(bb) provided that they are reasonable in relation to the services received and that they are in respect of the administration or management of shares or securities.
(c)
Does the principal business activity of a person or partnership carrying on a financial services business and providing insurance, investment and lending services include the provision of services in respect of the administration or management of shares or securities even if the provision of such services represents less than 50% of its total activities? CRA responded:
While services in respect of the administration or management of shares or securities must be part of the person's principal business, other activities may also be carried on in the same business.
Accordingly, the principal business of a person carrying on a financial services business and offering insurance, investment and lending services is, inter alia, providing services in respect of the administration or management of shares or securities even if the activities relating to those investment services alone represent … less than 50% of the person's total activities.
… [A] person licensed by one of the Canadian Securities Administrators to advise on the advisability of buying or selling certain shares or securities or to provide services in respect of the administration or management of shares or securities may be presumed to satisfy the "principal business" condition.
(d)
Is it CRA’s position that fees paid to an investment dealer are not deductible under s. 20(1)(bb) since the principal business of an investment dealer is not advising as to the advisability of buying or selling shares or securities? CRA responded:
[I]t is reasonable to assume that the principal business of a person licensed as a securities dealer is to advise on the advisability of purchasing or selling shares or securities or to provide services in respect of the administration or management of shares or securities.