12 May 1997 External T.I. 9707945 - PERSONAL SERVICES BUSINESS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Principal services business ?

Position:

Question of fact

Reasons:

Contract of services or for services

		970794
XXXXXXXXXX		C. Tremblay

May 12, 1997

Dear Sir:

Re: "Personal Services Business"

This is in response to your letter of March 18, 1997, requesting our opinion as to whether or not a corporation ("Company A") providing oilfield testing and consulting services to another corporation ("Company B") performed by an individual would be considered a "personal services business" pursuant to subsection 125(7) of the Act.

The situation outlined in your letter appears to relate to specific ongoing transactions. It is not the practice of this Department to give written opinions on such transactions as indicated in Information Circular 70-6R3. However, we can provide you with the following general comments which we hope will be of assistance to you.

Whether or not a particular corporation is a personal services business is a question of fact to be determined from an examination of all the facts, however, under subsection 125(7) of the Act, a corporation is considered to be carrying on a personal services business if, among other factors, an individual performs services on behalf of the corporation (the "incorporated employee") and the incorporated employee or a person related thereto owns 10% or more of the shares of the corporation and the incorporated employee would otherwise, but for the existence of the corporation, reasonably be regarded as an employee or officer of the person who received the services from the corporation, unless the corporation employed, throughout the year, more than five full time employees in the business or the services were performed for a corporation with which it was associated.

Whether there exists a contract of service or a contract for services can only be determined after examining all the particular facts of the situation between the individual and the corporation. Accordingly, the issue in relation to subsection 125(7) of the Act is whether the individual can reasonably be regarded as an officer or employee of Company B on the presumption that Company A does not exist.

For additional comments on this subject, see Interpretation Bulletin IT-73R4.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch