15 October 1996 External T.I. 9634015 - SUBSTANTIAL CANADIAN PRESENCE

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1) Whether services rendered by employees of 3rd party corporation or partnership or partners of partnership are services of "other individuals" within meaning of clauses 206(1.1)(d)(iii)(C) & (D); 2) whether services of "other individuals" must be of type normally provided by an employee or can include any service.

Position:

1) Yes; 2) can include services of any type.

Reasons:

1) Use of words "other individuals" in legislation means employer/employee relationship not required but only a relationship between expenses incurred and services provided; 2) words can be interpreted so as not to restrict the word "services" by the word "employees" - nothing in purpose of legislation requires a more restrictive interpretation..

XXXXXXXXXX							963401

Attention: XXXXXXXXXX

October 15, 1996

Re: Draft Amendments to Section 206
Contained in June 20, 1996
Notice of Ways and Means Motion

This is in reply to a letter of October 9, 1996, from XXXXXXXXXX, in which she asks us to confirm that services rendered by employees of a corporation or partners or employees of a partnership will be considered "services of...other individuals" within the meaning of those words as used in proposed clauses 206(1.1)(d)(iii)(C) and (D). These amendments were released in the above-noted document. She also refers to the Technical Notes to proposed subsection 206(1.3) released at the same time as support for the interpretation requested. Reference is also made to your telephone conversation of October 11, 1996 (Duff/XXXXXXXXXX), in which you request that we confirm that the services provided by "other individuals" may be services of a kind not normally provided by employees.

The Technical Notes are as follows:

Note...it is contemplated that services could be rendered to a corporation directly (i.e., where the relevant corporation employs the individual or contracts directly with the individual) or indirectly (e.g., where the relevant corporation engages another corporation the employees of which render services to the relevant corporation).

This will serve to confirm that where the corporation in question (the "relevant corporation") enters into a contract with another corporation or partnership, the expenses paid by the relevant corporation relating to the services rendered to the relevant corporation by employees of the other corporation or the partnership, or to services rendered to the relevant corporation by the partners will be considered to be expenses incurred by the relevant corporation for the services of other individuals as contemplated in proposed clauses 206(1.1)(d)(iii)(C) and (D).

With respect to the types of services for which expenses may be incurred to meet the test in either of proposed clause 206(1.1)(d)(iii)(C) or (D) we confirm that in our opinion the services provided by "other individuals" need not be of the kind which are normally provided by employees.

We trust this information assists. Please note that these comments are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch