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.
Dear Sirs:
Re: Self-Employed Real Estate Agents
This is in reply to your letter of October 15, 1990 and subsequent facsimile transmissions of January 15, 1991 wherein you ask whether a self-employed real estate agent may incorporate, utilize the small business deduction and not be considered an incorporated employee as envisaged in paragraph 125(7)(d) of the Act.
One of the requirements for the application of paragraph 125(7)(d) of the Act is that the "... incorporated employee would reasonably be regarded as an officer or employee of the person... to whom or to which the services were provided but for the existence of the corporation..." on behalf of which he performed the services. This paragraph requires that the incorporated employee be reasonably regarded as either an "officer" or "employee". Whether the relationship that would otherwise exist between the agent and the real estate company is one of a contract of service or a contract for services is a question of fact that can only be determined after examining all of the particular facts of an specific situation.
The correspondence forwarded by you, from the Director-Taxation, Penticton D.0. addressed to 24(1) indicates that you have a factual situation that concerns a self-employed real estate agent. If this is not the case, you may wish to contact Mr. Harry Bourne, Chief of Source Deductions in the Penticton District Office for a ruling on behalf of your individual client or clients. You may reach him at (604) 492-9222.
Where a self-employed real estate agent incorporates as a Canadian controlled private corporation, as defined in paragraph 125(7)(b) of the Income Tax Act, we are of the view that a small business deduction under subsection 125(1) may be available to the corporation, if the corporation otherwise qualifies for this deduction. Where the corporation is providing the services of an independent contractor, it is not considered to be providing the services of an "incorporated employee". As a result, income earned by the corporation is not considered income earned by a personal services business as envisaged in paragraph 125(7)(d) of the Act.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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