16 November 1998 Internal T.I. 9814506 - LABOUR EXPENDITURE

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.

									November 25, 1998

	Audit Directorate						Resources, Partnerships and
	Specialized Compliance					  and Trusts Division
	  Enhancement Division					F.B. Fontaine

	Louise Green
	Tax Incentive Audit Section
      								981450

Labour Expenditure
Section 125.4 of the Income Tax Act (the “Act”)

This is in reply to your memorandum dated June 1, 1998 concerning the above captioned subject and contributions made to a group registered retirement savings plan (“Group RRSP”) by a taxpayer for all union members.

You asked whether contributions made by the taxpayer to the Group RRSP on behalf of certain individuals in the scenarios described in (1) to (3) below would be included in the taxpayer’s “labour expenditure” for the purposes of calculating the taxpayer’s Canadian film and video production tax credit (“FTC”) under section 125.4 of the Act.

(1) The individual is an employee of the taxpayer. The employee’s salary shown on his/her T4 slip will include the amount contributed to the Group RRSP.

(2) The individual is not an employee of the taxpayer but performs services, under contract, to the taxpayer in respect of the production of the taxpayer’s property. The amount paid to the individual for such services is shown on his/her T4A slip and includes the Group RRSP contribution.

(3) The individual who is not the employee of the taxpayer is an employee of another corporation which may include a personal services corporation that performs services, under contract, to the taxpayer in respect of the production. Contract payments are made to the corporation by the taxpayer less an amount withheld and remitted to the Group RRSP in respect of the individual. There is some concern that the RRSP contribution was not paid to the corporation.

You confirmed in our telephone conversation (Fontaine/Green) that no part of the Group RRSP contribution made by the taxpayer represents the taxpayer’s share thereof.

Our Comments

1. It is our view that the amount described in (1) and (2) above would be included in the taxpayer’s labour expenditure where:

(a) in the case of (1) above, the amount contributed to the Group RRSP formed part of the salary or wages of the individual described under paragraph (a) of the “labour expenditure” definition in subsection 125.4(1) of the Act and reported as such on his/her T4 slip, provided that the other requirements of that paragraph were otherwise met and no part of such contributed amount was determined by reference to profits or revenues;

(b) in the case of (2), the amount contributed to the Group RRSP was otherwise part of the individual’s remuneration paid under the contract, whether or not reported on a T4A slip (which, in the case of an independent contractor, does not appear to be required under the law), and described under clause (b)(i)(A) of the “labour expenditure” definition as being attributable to services personally rendered by the individual for the production of the taxpayer’s property, provided that the other requirements of that clause were otherwise met.

2. In the scenarios described in (3), an amount included in the definition of “labour expenditure” must, among other things, be paid to another taxable Canadian corporation. Therefore, an amount that is not paid to such corporation, technically, may not qualify. Such determination will depend on the terms of the particular contract entered into between the parties.

3 Where an individual employee of the corporation was engaged in various productions in the year, we would be concerned there may be some difficulty meeting the requirements that the amount is “directly attributable to the production” and “included in the cost or....capital cost ...of the property” of the taxpayer.

We would be pleased to provide a more definitive response if you could supply us with the pertinent documents of a particular situation. Should you require any further clarification, you may contact Frank Fontaine at 957-4364.

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

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