26 June 1996 External T.I. 9611195 - WHETHER EMPLOYEE IF NO REMUNERATION

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 spouse's years of service prior to 1980 for which no remuneration was paid can be included in calculation of amount eligible for deduction under clause 60(j.1)(ii)(A).

Position:

Question of fact.

Reasons:

Amounts received after loss of employment or retirement where low or no remuneration received may be deferred compensation and taxable under section 5 or a retiring allowance taxable under subparagraph 56(1)(a)(ii).

									961119
XXXXXXXXXX							P. Spice

Attention: XXXXXXXXXX

June 26, 1996

Re: "Employed by the Employer" for Purposes of Paragraph 60(j.1) of the Income Tax Act

This is in reply to your letter of March 5, 1996, in which you ask for an interpretation concerning the above-noted phrase. In particular you ask whether a spouse of an employer who was not paid remuneration prior to 1980 could include such years in the calculation of the amount eligible for deduction under clause 60(j.1)(ii)(A) of the Income Tax Act (the "Act").

You refer to the prohibition in former subsection 74(3) of the Act which prevented an employer from deducting, and the spouse from including, amounts paid or received as remuneration as an employee.

Former subsection 74(3) did not deem the relationship of employer and employee not to exist but prevented the usual tax consequences flowing from payment and receipt of employment income.

We are not prepared to confirm on a general opinion basis that a spouse who received no remuneration for years of service prior to 1980 would be considered to be "employed by an employer" in those years. However, in a particular case it may be possible to prove the existence of an employment relationship in the absence of remuneration.

We also are of the view that if there is an employment relationship but the employee received low or no remuneration for the services provided, a payment upon retirement or loss of employment could constitute deferred compensation and be taxable as employment income pursuant to subsection 5(1) of the Act.

We trust the foregoing comments, although not binding on the Department, will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate