Normally, on the purchase by a client of a GIC of a bank, the bank would receive the face amount of the GIC (say, $21,000) and pay a broker a commission of 0.75% (or $157.50). However, where the broker waived the commission, the client would acquire the GIC for $20.842.50, and realize a capital gain of $157.50 on maturity. Is this correct?
CRA characterized the arrangement as one under which the client invested $21,000 in the GIC, of which $20.842.50 came from the client’s own funds and $157.50 came from the commission received by the broker from the bank which it applied to the payment of the balance of the client’s GIC – so that the cost of the GIC to the Client was $21,000.
After indicating that the latter amount might otherwise be included in the client’s income under s. 12(1)(x), CRA noted that “provided the Client acquires and holds the GIC as capital property, the Client could make the election under subsection 52(2.1) to avoid the application of paragraph 12(1)(x) and reduce the cost of the GIC by the amount of the commission pursuant to paragraph 53(2)(s).”