A reader asked, “Are insurance advisors taxed on commissions paid from personally owned policies?”
The short answer is possibly yes.
The long answer? Back in 2009, the Tax Court of Canada ruled in Bilodeau v the Queen that, given certain conditions, they can be taxable. Jamie Golombek wrote a great summary of the case.
Confusion lies because of Interpretation Bulletin IT-470R, which suggests that commissions received by life insurance salespersons who acquire their own life insurance policy are not taxable if the salesperson owns that policy and is obligated to make the required premium payments thereon. Keep in mind that IT bulletins are not binding in law.
There have not been any further developments in this area since 2009 that would suggest commissions on personally owned life insurance policies are tax-free.
In 2011, the CRA did issue a technical interpretation where they were asked whether commissions paid to insurance advisors on personally owned properties were taxable. They responded that the taxation was a question of fact, but generally indicated that the commissions would be taxable if:
- the commissions were significant in amount or;
- the policies had any investment or business component.
If we consider both the Bilodeau ruling and the technical interpretation, we can also determine that if the purpose of the personally owned policies is considered investment and not for personal protection, or if the commissions paid are significant, then the commission on personally owned products could be taxable as income (with no offsetting deduction).
At the end of the day, each case needs to be reviewed in the context of its circumstances, but this answer should give insight as to how taxation may apply.