11 February 2002 External T.I. 2002-0120775 - SPECIFIED INVESTMENT 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 CCRA.

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

Principal Issues: Whether a corporation can combine full-time employees with part-time employees to meet the requirements of par. (a) of the definition of "Specified Investment Business" in ss. 125(7).

Position: No.

Reasons: Our position is clearly established in par. 15 of IT-73R5 and does not need to be revised following the recent court decisions.

XXXXXXXXXX 2002-012077
Patrick Massicotte
February 11, 2002

Dear XXXXXXXXXX:

Re: Specified Investment Business

We are writing in response to your letter of January 21, 2002, wherein you requested our comments regarding the interpretation of the term "Specified Investment Business", as defined in subsection 125(7) of the Income Tax Act (the "Act"). You submit a number of hypothetical situations for which you ask whether the corporation would be considered to have employed in the business throughout the year more than 5 full-time employees, as required by paragraph (a) of that definition. The situations are described as follows:

1. A corporation employs throughout the year 5 full-time employees and no part-time employees;

2. A corporation employs throughout the year 5 full-time employees and at least one part-time employee;

3. A corporation employs throughout the year 6 full-time employees and no part-time employees;

4. A corporation employs throughout the year 4 full-time employees and 6 part-time employees where the part-time employees provide services the equivalent of 3 full-time employees.

Finally, you inquire whether changes are expected to be brought to our interpretation of the phrase "more than five full-time employees" in a situation involving part-time employees, following the Federal Court of Appeal decision in the case of Lerric Investments Corp. v. The Queen, 2001 DTC 5169.

Our Comments

Written confirmation of the tax implications arising from particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request pursuant to Information Circular 70-6R4. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide you with some general comments which may be of assistance.

Consistent with the comments made in paragraph 15 of Interpretation Bulletin IT-73R5 and the decision of the Federal Court-Trial Division in the case of Hughes & Co. Holdings Limited (94 DTC 6511), that employees working part-time cannot qualify as full-time employees, it is our view that the corporation would not be considered to have employed in the business throughout the year more than 5 full-time employees in situations 1, 2 and 4, for the purposes of paragraph (a) of the definition of specified investment business in subsection 125(7) of the Act. However, the corporation would be considered to have employed in the business throughout the year more than 5 full-time employees in situation 3.

In response to your second question, we do not believe the comments made in the recent court decisions require any changes to the above position at this time. Therefore, it remains our position that more than five full-time employees means six or more full-time employees.

We trust the above comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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