9098-9005 Québec Inc. - Tax Court comments on the legal impossibility of a salaried partner

An individual who managed a partnership for a fixed fee "through" a corporation of which he was the sole officer and shareholder would have been an officer of the partnership but for the interposition of his corporation - so that the corporation was found to be carrying on a personal services business (with a resulting loss of the small business deduction).

Before reaching this conclusion, Bédard J. noted that the same individual could not have been viewed as an employee (as contrasted to the holder of an office) of the partnership as (at both common law and Civil Law) it was "well established that a partner cannot be an employee in his own partnership."  This legal proposition is in part the basis for a CRA position that fixed partnership draws paid to a "salaried" partner cannot give rise to a deductible loss to the other non-salaried partners.  See Income Tax Technical News, No. 30.

This case also may indicate that in some circumstances, "fees" paid to an individual partner-manager of a partnership are exempt from GST/HST under s. 272.1 of the Excise Tax Act.

Neal Armstrong  Summaries of 9098-9005 Québec Inc. v. The Queen, 2012 TCC 324 under s. 125(7) - personal services business and s. 248(1) - office.