30 January 1997 External T.I. 9700065 - PERSONAL SERVICES BUSINESS

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: principal services business ?

Position: Question of fact

Reasons: contract of services or for services

	                                  	970006
XXXXXXXXXX		                                 C. Tremblay

Attention: XXXXXXXXXX

January 30, 1997

Dear Sirs:

Re: "Personal Services Business"

This is in response to your letter of January 2, 1997, requesting our opinion as to whether or not a newly formed corporation proposing to work for an oil related company on pipe fitter and plumbing contracts previously performed by an individual would be considered a "personal services business" pursuant to subsection 125(7) of the Act.

The situation outlined in your letter relates to specific proposed transactions. It is the practice of this Department to comment on such transactions only by way of advance ruling. However, we can provide you with the following general comments which we hope will be of assistance to you.

Whether or not a particular corporation is a personal services business is a question of fact to be determined from an examination of all the facts, however, under subsection 125(7) of the Act, a corporation is considered to be carrying on a personal services business if, among other factors, an individual performs services on behalf of the corporation (the "incorporated employee") and the incorporated employee or a person related thereto owns 10% or more of the shares of the corporation and the incorporated employee would otherwise, but for the existence of the corporation, reasonably be regarded as an employee or officer of the person who received the services from the corporation, unless the corporation employed, throughout the year, more than five full time employees in the business or the services were performed for a corporation with which it was associated.

Whether there exists a contract of service or a contract for services can only be determined after examining all the particular facts of the situation between the individual and the oil field related company. Accordingly, the issue in the above situation in relation to subsection 125(7) of the Act is whether the individual can reasonably be regarded as an officer or employee of the oil field related company on the presumption that the new corporation does not exist.

For additional comments on this subject, see Interpretation Bulletin IT-73R4.

We trust our comments will be of assistance to you.

Yours truly,

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