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.
Principal Issues: Whether a person whose business income is derived primarily from construction activities must file Form T5018
Position: Yes.
Reasons: Section 238 of the Regulations
XXXXXXXXXX 2009-031521
Lindsay Frank
(613) 948-2227
July 2, 2009
Re: T5018 - Statement of Contract Payments
Dear XXXXXXXXXX :
This is in reply to your letter of March 18, 2009, in which you inquired whether a company is required to file a Statement of Contract Payments ("Form T5018").
Section 238 of the Regulations of the Income Tax Act ("the Act") requires a person or a partnership, whose business income is derived primarily from construction activities, to file an information return, reporting all payments made in the course of construction activities. The reporting period may be on a calendar year or fiscal year basis, but the payments must be reported on Form T5018 within 6 months from the end of the reporting period. Once a reporting period has been chosen, it cannot be changed for subsequent years, unless otherwise authorised by the Minister.
"Construction activities" are defined in subsection 238(1) of the Income Tax Regulations ("Regulations") and include the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or subsurface, construction, or any similar property.
The definition of a "person" is contained in subsection 248(1) of the Act and includes any corporation.
In M.N.R. v. Hollinger North Shore Exploration Co. Ltd., 63 D.T.C. 1031, the Supreme Court of Canada adopted the meaning of "derived" from Commissioner of Taxation v. Kirk, [1900] A.C. 588, to mean broader than "received" and to be equivalent to "arising or accruing".
Reference was made in your query to document E2006-020297117, where we held the view that "derived primarily from those [construction] activities" could be interpreted broadly to include a real estate developer, who has derived more than 50% of its business from construction activities. We further stated therein that section 238 of the Regulations would apply to real estate developers who hire a general contractor to construct buildings for resale.
The Company in question, which you identified as "M", purchases and develops land, and hires general contractors to construct retail shopping centres. On the completion of the shopping centres, it either rents the units in the shopping centres or sells the shopping centres. If it sells the shopping centres, a management company would continue to manage them for a fee on the purchaser's behalf. Company M's revenue consists primarily of rental income, or income from the sale of shopping centres.
In light of the activities of Company M, we share your view that it is a person whose business income is derived primarily from construction activities. Accordingly, it is required to file an information return T5018 pursuant to section 238 of the Regulations.
Should you require clarification or need additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
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