17 September 1996 External T.I. 9629665 - EMPLOYMENT WITHOUT REMUNERATION

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:

Whether family member who owns shares and receives no salary or other compensation for services rendered is an "employee" for purposes of 60(j.1) and "retiring allowance" definition.

Position:

Question of fact.

Reasons:

Same as 961119 which dealt with spouse.

								962966
XXXXXXXXXX							P. Spice

Attention: XXXXXXXXXX

September 17, 1996

Re: Employment Without Remuneration

This is in reply to your letter of August 28, 1996, in which you ask whether an individual who provides services to a company but receives no salary or other compensation is considered an employee. The individual and family members are the shareholders of the company but the individual does not directly control the company.

Your query relates to the issues of whether the company can pay the individual a "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (the "Act") and whether the individual would be entitled to a deduction under paragraph 60(j.1) of the Income Tax Act (the "Act") upon a subsequent transfer of an amount of a retiring allowance to a registered retirement savings plan. The words to be interpreted are, respectively, "retirement from an employment" and "employed by the employer".

We are not prepared to confirm on a general opinion basis that an individual who received no remuneration for years of service would be considered to have an "employment" from which the individual could retire or to be "employed by an employer" in those years. However, in a particular case it may be possible to prove the existence of an employment relationship in the absence of remuneration.

We are also of the view that if there is an employment relationship but the employee received low or no remuneration for the services provided, a payment upon retirement or loss of employment could constitute deferred compensation and be taxable as employment income pursuant to subsection 5(1) of the Act.

We trust the foregoing comments, although not binding on the Department, will be of assistance to you.

Yours truly,

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