14 April 2005 Internal T.I. 2004-0081371I7 - Requirement to file T5018

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 corporation required to file an information return pursuant to subsection 238(2) of the Income Tax Regulations where the corporation pays amounts to sub-contractors for the construction of a residential building on behalf of an employee of the corporation?

Position: Yes

Reasons: The Corporation is engaged in construction activities and is making payments for goods or services rendered in the course of construction activities to sub-contractors.

		April 14, 2005

	London Tax Services Office	HEADQUARTERS
	Fred Smith	Luisa A. Majerus, CA
	Collections Branch	957-2138

		2004-008137

Requirement to file T5018

This is further to your request to Linda Potvin, Programs Officer, Enforcement Programs, Trust Accounts Division dated May 26, 2004, requesting an opinion on whether a particular corporation is required to file an information return pursuant to subsection 238(2) of the Income Tax Regulations ("Regulations").

Overview

An employee of a corporation has hired a general contractor to construct a residential building. The employee indirectly owns 100% of the shares of the corporation. The corporation, which is engaged in construction activities, is paying the sub-contractors, as directed by the general contractor, on behalf of the employee. You have asked our opinion on whether or not the corporation is required to file an information return in respect of these payments.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Subsection 238(2) of the Regulations provides the following:

Every person or partnership that pays or credits, in a reporting period, an amount in respect of goods or services rendered on their behalf in the course of construction activities shall make an information return in the prescribed form in respect of that amount, if the person's or partnership's business income for that reporting period is derived primarily from those activities.

Where a corporation carries on construction activities and pays an amount in respect of goods or services rendered in the course of construction, the corporation will be required to make an information return (Form T5018) pursuant to subsection 238(2) of the Regulations.

We trust this information is helpful.

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch