28 April 1998 External T.I. 9805865 - MANAGEMENT SERVICES CO. - PARAPROFESSIONAL

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:

Whether a management services corporation, whose fees are set at 15% over the cost of providing the management or administration services to the professional, can include in such cost the amount of salaries and benefits paid to paraprofessionals.

Position:

Question of fact.

Reasons:

Provided that there are no provincial laws or professional regulations governing the vocation of the particular employee which prevents a corporation from engaging in that vocation, the salary and benefits paid to the particular employee can be included in the cost of providing the management or administration services to the professional.

XXXXXXXXXX 	J. Gibbons
		5-980586
Attention:  XXXXXXXXXX 

April 28, 1998

Dear XXXXXXXXXX:

We are replying to your letter of March 4, 1998, in which you inquire whether a management services corporation, whose fees are set at 15 percent over the cost of providing the management or administration services to the professional (the “administration cost”), can include in such cost the amount of salaries and benefits paid to paraprofessionals.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

As indicated in your letter, the Department considers a management service fee reasonable where it does not exceed 115 percent of the administration cost. However, as stated in the answer to question 18 of the Thirty-Seventh Canadian Tax Foundation Conference, 1985 Round Table Questions & Answers, the administration cost cannot include the cost of services that relate directly to the practice of the profession where the relevant provincial law or professional regulations provide that only individuals may practise the profession.

As regards salaries and benefits paid to auxiliary or paraprofessional staff, it is our view that our position as stated at the 1985 Conference applies equally to all manner of employees, including paraprofessionals. Accordingly, to determine whether the amount of a particular employee’s salary can be included in the administration cost, one must look to the relevant provincial law or professional regulations, if any, governing the particular employee. For example, if the regulations governing the vocation of an employee allow corporations to provide the particular service, the salary or benefits paid to that employee, provided they are reasonable in the circumstances, can be included in the administration cost.

We trust that these comments will be of assistance.

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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