(March 20 – 12:40 ET) – A recent tax court decision upholds the viability of flowing commissions through personal corporations, even if the practice violates licensing rules, according to a story in today’s National Post.

Arthur Drache, QC, a partner in the Ottawa law firm of Drache, Burke-Robertson & Buchmayer, writes in today’s National Post that, “A recent decision of the Tax Court of Canada confirms once more that it is possible, with good planning and careful execution, to shift commissions to a corporation. What is more, even if the shifting of commissions violates licensing agreements or private contracts, this fact alone will not impugn the validity of the transaction for tax purposes.”

The story in the NP says that in the days leading up to this decision, a Canada Customs and Revenue Agency insider says that the agency “was threatening to reassess hundreds of mutual fund representatives for shifting commissions to their corporations. The basis, we were told, was that this appeared to be in contravention of licensing rules. As recently as January this year, the CCRA reiterated its position in a ruling published in late February that such assignments are not effective, even though they lost this case.”

The case cited in today’s paper involves Jerome Wallsten, an insurance agent and one-time employee of Sun Life Assurance Company of Canada. In 1996, Wallsten began his own insurance practice, including selling Sun Life products under the terms of a written contract. Wallsten flowed his commissions through a personal corporation and he drew a salary from it.

The CCRA insisted on assessing Wallsten personally for the money that flowed through the company, arguing that the agreement with Sun Life prohibited Wallsten from paying his commissions into his company. The NP says that Tax Court Judge Ronald Bell, “wasn’t buying the CCRA argument”, noting he relied primarily on the Supreme Court of Canada’s decision in Her Majesty the Queen v. Dr. H. Hoyle Campbell.

Bell is quoted as declaring, “I have concluded that the appeals should succeed. The fact that the agreement between them was in violation of Wallsten’s contract with Sun Life does not affect tax liability. My finding is consistent with the reasoning of the Supreme Court of Canada in Campbell, above.”