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Exercise Caution in Relying on CRA Policy!

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Exercise Caution in Relying on CRA Policy!

Recent Tax Court Decision Punishes Taxpayer for Relying on CRA Policy

The Appellant in a recent tax court decision, Ghumman v. The Queen (2019 TCC 125) worked as an insurance salesman in 2014. He sold himself a sizeable life insurance policy, receiving a commission of $57,261.63. When he received a T4A slip from his employer summarizing his commissions in the year, he did not claim this amount in income on the basis of a specific provision in CRA’s policy for employees’ benefits which stated that this was exempt from taxation.

cra policy

Mr. Ghumman relied on a specific line in the CRA’s former policy on this matter, stating that “when life insurance salespeople acquire life insurance policies, the commissions they receive are not taxable as long as they own the policies and have to make the required premium payments.” However, there is no specific rule in the Income Tax Act that would exclude the commissions from income.

CRA Publishes Interpretations

The CRA publishes its own interpretations of tax laws frequently. Occasionally, these interpretations may differ from conclusions reached by practitioners or the courts—sometimes to the benefit of the agency and sometimes to the taxpayer.

Particularly when dealing with employees, these carveouts may have more to do with an attempt to avoid bad PR or administrative hassles rather than a bona fide interpretation of tax statutes (for example, carveouts for loyalty rewards on credit cards where employees cover business expenses and receive a reimbursement). CRA caused a stir in 2017 when it moved to change a longstanding policy not to tax benefits obtained by retail workers on merchandise (which it has walked back). These carveouts tend not to be particularly principled.

Neither the CRA Nor the Courts are Bound by These Interpretations

Beneficiaries of these policies will, understandably, not challenge them, and so the deviation from the law as-written often goes unnoticed. However, where the CRA does decide to reassess a beneficiary, the taxpayer has little recourse. Neither the CRA nor its lawyers nor the Courts are bound by these policy interpretations.

Court Went Against CRA Policy and Ordered the Taxpayer to Pay Tax

As the Court pointed out to the Mr. Ghumman, the Court lacks both the power and the inclination to enforce CRA’s administrative carveouts, it pointed out to the taxpayer that there was no legal reason to exclude the commission and confirmed the CRA’s assessment of unreported income. Even then, the policy as-written, specifically did not embrace “significant” benefits, and so even if the Court did apply the policy, it likely would not cover quite a sizeable commission.

While the CRA will generally honor their own policies, taxpayers should be cautious about putting too much stock in them, particularly when have little else to base their claims on. Watch out! The CRA’s interpretation guidelines can be tricky and based on this jurisprudence, should not be relied upon.

Curious about how CRA’s policies apply to your circumstances? Contact us at www.kalfalaw.com.

– James Alvarez, Tax Counsel

© Kalfa Law 2019

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
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