7 February 2011 External T.I. 2010-0388981E5 - No salary for work performed

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.

Principal Issues: Is a person required to include an amount in income for worked performed where no salary was actually received?

Position: No

Reasons: Only income "received" from an office or employment is subject to tax under subsection 5(1) of the Act. However, depending on the facts of each situation, income attribution rules or the transfer of rights to income rules may be applicable.

XXXXXXXXXX
									2010-038898
									P. Waugh

February 7, 2011

Dear XXXXXXXXXX :

Re: No Salary for Work Performed

I am writing in response to your letter of November 30, 2010 concerning whether an employee is required to include an amount in income when he is the sole provider of services to a corporation and his spouse is the sole shareholder of that corporation.

In the situation you described, ABC Limited ("ABC") is a Canadian controlled private corporation which is owned 100% by Mrs. X. Mr. X (spouse of Mrs. X.) is an employee of ABC. ABC earns revenue as a result of Mr. X's services to clients of ABC. No other revenue or expense is incurred for ABC. ABC's after tax earnings are available to pay dividends to Mrs. X.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

In accordance with subsection 5(1) of the Income Tax Act (the "Act"), an individual's income for a taxation year from an office or employment is the salary, wages and other remuneration received by the individual in the year. An amount from office or employment must be received to be taxable under this subsection. Where an individual does not receive any salary, wages or remuneration from employment, subsection 5(1) will generally not apply.

However, there are several provisions in the Act which apply attribution rules to discourage income splitting or the transfer of the right to an amount which would otherwise have been income of the taxpayer in a taxation year, and restrict a taxpayer's ability to simply transfer or assign a source of income to a person with whom the taxpayer is not dealing at arm's length for income splitting purposes. A determination of whether these rules apply can only be made on a case by case basis after a review of all the facts. Based on the limited information provided, we are not in a position to make such a determination in the situation you described.

We trust these comments will be of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch