Accounting for insurance & financial advisors.

Questions worth getting ahead of

• Understanding why arranging insurance is exempt from GST/HST
• Deciding whether a contract makes you an employee or self-employed
• Knowing which licence, bonding and phone costs are deductible
• Budgeting tax on commission income that varies month to month
• Knowing when to expect CRA instalment reminders on self-employed income

Arranging insurance is generally an exempt supply

The CRA lists the issuance of insurance policies by an insurer, and the arranging of those policies by insurance agents, as exempt supplies for GST/HST. In practice that usually means you do not charge GST/HST on the commissions you earn, and you generally cannot claim input tax credits for the tax you pay on your own costs. Other income, such as a separately priced service, can have a different tax status, so list each source of revenue before assuming. Bring your commission statements and any invoices you issue, so your accountant can sort the exempt income from anything taxable.

Financial services income does not count toward the $30,000 test

When the CRA explains who has to register for GST/HST, it says you generally cannot register if you provide only exempt supplies. It also says that revenue from supplies of financial services is left out when you work out whether you are a small supplier. That can surprise advisors who earn a mix of fees: only the taxable part is measured against the $30,000 threshold. Keep your revenue records separated by type from the first year, and ask your accountant to confirm how each stream is classified before you decide whether registration is required or optional.

A commission is not proof that you are self-employed

Many agents are paid by commission, but the CRA treats that as one factor among several rather than a deciding one. It looks at control, ownership of tools, financial risk, and whether you can hire helpers or send a replacement. Its guidance notes that employees paid on commission can also see their earnings rise with productivity. The answer decides whether you report on Form T2125 as self-employed or receive a T4 as an employee, and it changes what you can deduct. Bring your agency or insurer contract and a list of who pays for what.

Commission employees have specific expense rules

If you are an employee paid in whole or in part by commission, you can generally deduct certain costs only when you meet conditions listed by the CRA. You had to pay your own expenses under your contract, you were normally required to work away from the employer’s place of business, you received no non-taxable travel allowance, and you keep a Form T2200 completed by your employer. Annual licence fees, bonding and liability premiums, and medical underwriting fees can qualify. Except for vehicle interest and capital cost allowance, the total is limited to the commissions you received.

Commission income and tax set-asides

Commission income can arrive in uneven amounts, and when you are self-employed, no tax is withheld from it. The CRA says you may have to pay income tax by instalments if your net tax owing is more than $3,000 in the current year and in either of the two years before (the limit is lower for Quebec residents). The CRA sends reminders in February and August, and offers several ways to calculate the payment. Set aside a share of each payout, track it in a separate account, and review the amount with your accountant when your income shifts.

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