14 August 1990 Administrative Letter 900926 F - Payment to Former Independent Contractor

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.

August 14, 1990

Dear Sirs:

Re:  Payment to Former Independent Contractor

This is in reply to your letter of May 18, 1990 wherein you requested our opinion on the tax consequences in the following circumstances.

24(1)

It is your view that 24(1)

Our Comments

As discussed with you by telephone, we are unable to provide you with a definitive reply since your question depends primarily on a determination of what the relationship between the tax exempt entity and the individual is in fact.

Insofar as the Rumack decision is concerned, the Department has appealed this case to the Federal Court of Appeal.  Thus we would not agree that the amounts in question could be tax free.

In our view, the real question is whether the fair market value of the rights granted to the individual under the annuity contract, regardless of who owns the annuity, is income to the individual under section 9 of the Act at the time the rights are created.  There is a strong presumption that all amounts paid by an arm's length party to an individual who provides services to that party constitute business income to the individual. 24(1)

Should you wish to discuss this case in more detail, you may wish to contact the Vancouver District Taxation Office providing the full particulars of the situation for their views on the matter. 

We trust our comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch