26 April 1990 Ministerial Letter 59388 F - Limitation Re Personal Services Business Expenses

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.

April 26, 1990

19(1)

We are writing in reply to your letter of January 8, 1990, wherein you requested our interpretation of paragraph 18(1)(p) of the Income Tax Act as it relates to the following hypothetical situation.

1.     A "personal services business" corporation (as defined in paragraph 125(7)(d)) accrues a salary to an incorporated employee of the corporation at the end of Year 1. Since subparagraph 18(1)(p) refers to "the salary, wages or other remuneration paid in the year" ... it is clear that a deduction under paragraph 18(1)(p) is not available for that year.

2.     The personal services corporation pays the accrued salary in the subsequent taxation year (Year 2) to the incorporated employee.

With respect to 2 above you requested our opinions as to whether the paragraph 18(1)(p) deduction would be permitted in Year 2, the year the salary was paid, given that it was not made or incurred by the corporation in that taxation year (Year 2), but in the preceding year.

Our Comments

It is our opinion the deduction of the salary paid in Year 2 would not be denied by virtue of the fact that the obligation to pay the wages arose in Year 1 and that the incurring of the wage expense and the payment of the expense need not occur in the same taxation year. We agree with you that no deduction would be allowed to the personal services corporation in Year 1 in respect of the accrued salary.

We hope these comments will be of assistance.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch