CRA considers that the sale of digital content generates gross income from property rather than services for TOSI purposes

One of the requirements to be an “excluded share” for purposes of the tax on split income (TOSI) is that less than 90% of the business “income” (i.e., revenue) of the corporation for its last taxation year “was from the provision of services.” Where a corporation produces and “sells” training videos as digital downloads from its website, are its resulting revenues considered as income from the provision of services for TOSI purposes? CRA responded:

[W]e are prepared to accept that payment for the right to download a digital product that traditionally would have been sold to the customer as a tangible property, will generally be treated as a sale of intangible property and not a provision of a service unless the facts and circumstances dictate otherwise.

CRA went on to indicate that payments for after-sales service, for “pure technical assistance” and for services rendered by a supplier under a guarantee, are considered to be income from the provision of services.

Neal Armstrong. Summary of 13 March 2020 External T.I. 2019-0833181E5 under s. 120.4(1) - excluded share – (a)(i).