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: TEI Round Table 2001; (1) Basis for the Lerric Investments Corp. assessment as it seems contrary to published position in par. 16 of IT-73R5; (2) Whether CCRA has an early warning system to inform public of revised positions.
Position: (1) Basis found in par. 15 of IT-73R5 and previous case law; (2) System already in place
Reasons: (1) Paragraph 15 of IT-73R5 clearly states that "more than five full time employees" means at least six full time employees. This position was upheld in the decision of Hughes & Co. Holdings Limited, 94 DTC 6511 (FCTD); (2) Revised positions are announced through revised Interpretation Bulletins and Income Tax Technical News releases, as mentioned in Index to IT and TN, in addition to publishing every ruling and interpretation issued.
TEI Conference
December 4, 2001
Question 15 Assessments Contrary to Published Administrative Positions
In Lerric Investments Corp. v. The Queen, 2001 D.T.C. 5169, the Federal Court of Appeal held that a taxpayer cannot count its proportional share of full-time employees employed by a joint venture in which it participated in order to satisfy the "more than five full-time employees" test in the definition of "specified investment business" in subsection 125(7) of the Act. Paragraph 16 of IT-73R5 states that, in order to determine the number of full-time employees employed by a corporation participating in a joint venture or other co-ownership arrangement, "the total number of full-time employees who work jointly for all the co-owners must be allocated to each co-owner in accordance with the co-owner's percentage of interest in the property."
(1) Would the CCRA confirm the basis of the assessment in this case as it appears diametrically opposite to its published administrative position?
(2) Can the CCRA comment on our recommendation for an early "warning" system to inform the public that an administrative position has changed?
CCRA's Position
(1) Paragraph 15 of IT-73R5 states that "the phrase '...the corporation employs in the business throughout the (taxation) year more than five full-time employees...' is considered to mean that an employer has six or more employees working a full business day (or a full shift) on each working day of the year, subject to normal absences due to illness or vacation." This position had been upheld by the Federal Court-Trial Division in the case of The Queen v. Hughes & Co. Holdings Limited, 94 D.T.C. 6511 where the court stated at page 6518:
"Subparagraph 125(7)(e)(i) could have been more felicitously phrased to state "no fewer than six full-time employees" or "at least six ... ", for that is exactly what it means. More full-time employees than five full-time employees always means "no fewer than six" or "at least six". The word "more" modifies "full-time employees" understood."
In Lerric Investments Corp., the corporation employed only two full-time employees directly but also participated in a number of joint venture projects. The corporation's share of the full-time employees employed at each project by the joint ventures was only fractional. Adding these fractions to the two employees resulted in the corporation claiming it had, for the taxation years 1990, 1991 and 1992, a total of only 5.05, 5.20 and 5.35 full-time employees respectively. The assessment in this case was therefore entirely consistent with the CCRA's administrative position as published. Moreover, it was supported by clear and unambiguous case law.
(2) As mentioned in the Index to Income Tax Interpretation Bulletins and Technical News, the CCRA will provide its interpretation of the income tax law that it administers and announce significant changes in its interpretations and their effective dates through the use of interpretation bulletins. These are however not law but can generally be relied upon as reflecting the CCRA's interpretation of the law to be applied on a consistent basis by its staff.
A change in an interpretation or position may also be announced in the Income Tax Technical News. This newsletter is issued ad hoc to provide the CCRA's immediate reaction to specific issues of significant impact and, therefore, serves as an early warning system.
In addition, the Income Tax Rulings Directorate does publish every ruling and interpretation that it issues.
Author: Patrick Massicotte
Division: Income Tax Rulings Directorate
Phone Number: 957-9232
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