Regulation 402

Subsection 402(3)

See Also

International Harvester Co. of Canada, Ltd. v. Provincial Tax Commission, [1949] A.C. 36 (PC)

The taxpayer manufactured agricultural implements outside Saskatchewan and had sales branches in Saskatchewan. The Saskatchewan Provincial Tax Commissioner determined the income of the taxpayer that was its "net profit ... arising from the business of such person in Saskatchewan" for purposes of the Saskatchewan Income Tax Act by applying the percentage of sales made in Saskatchewan to the taxpayer's world-wide income.

The Court found this method to be unreasonable because it effectively subjected a portion of the taxpayer's manufacturing profits to Saskatchewan tax and went on to state in obiter dicta (at p. 53) that it would have been "not unreasonable" to ascertain the manufacturing profits that were exempt from Saskatchewan tax by reference to the wholesale price of the goods.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) apportionment between manufacturing and selling 82

Commissioners of Taxation v. Kirk, [1900] A.C. 588 (PC)

Two mining companies that mined crude ore in New South Wales and (for the most part) also processed the crude ore there, but made contracts for sale of the product outside the Colony were found to have "incomes ... arising or accruing ... from any ... trade ... carried on in New South Wales", or "derived from lands of the Crown" in the Colony, or "arising or accruing ... from any other source whatsoever in New South Wales". Lord Davey also stated (at p. 592) that "their Lordships attach no special meaning to the word 'derived' which they treat as synonymous with arising or accruing".

Words and Phrases

Administrative Policy

1 September 2015 Internal T.I. 2013-0507381I7 - Transfer pricing adjustments and gross revenue

s. 247(2) increases to proceeds (but not downward adjustments to purchase prices) increase gross revenue for provincial allocation purposes

In the first scenario, a Canadian resident purchases a good (or service) from a non-resident at an amount in excess of an arm’s length price, and a transfer pricing adjustment is made to reduce the excess expenditure. In the second scenario, a Canadian resident sells a good (or provides a service) to a non-resident at an amount less than an arm’s length price and a transfer pricing adjustment is made to increase the amount considered to be received. Do such adjustments increase the Canadian resident’s gross revenue, as defined in s. 248(1)?

After noting the relevance of gross revenue to allocations under Reg. 402(3), CRA stated respecting Scenario 1:

Since the primary adjustment changes an amount paid, there is no amount that is received or receivable. Thus, an adjustment… would not be included in gross revenue for provincial income allocation purposes.

Respecting Scenario 2:

Upward adjustments made as per 247(2) essentially deem the sale price…to be what it would have otherwise been had the parties been dealing at arm’s length. Therefore, the amount of the increase should be included in gross revenue for the year… .

…[A]ny adjustment to gross revenue would be attributable…to whichever permanent establishment was reasonably attributed the gross revenue from the sale that was subject to the transfer pricing adjustment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) [s. 247(2) increases to gross revenues] 37
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Gross Revenue sales (but not purchases) transfer pricing adjustments to gross revenue 39

31 March 2014 Internal T.I. 2013-0514921I7 - Meaning of "gross revenue" follow-up

meaning of "gross revenue"

Should amounts received or receivable as volume discounts should be included in a corporation's "gross revenue" for purposes of Reg. 402(3)? After noting "that taxpayers tend to treat gross revenue to mean revenue for financial statement purposes" and "that, for financial statement purposes, rebates and volume discounts are deducted from the cost of purchase," stating that the "truer picture" doctrine in West Kootenay Power, 92 DTC 6023 and Canderel, 98 DTC 6100 was "not determinative of the issue because gross revenue is specifically defined in the Act, whereas profit and loss are not," and noting that "using financial statement revenue would potentially render paragraph (b) of the definition of gross revenue meaningless," CRA stated that "gross revenue for the purposes of Part IV of the Regulations includes all amounts received or receivable by a taxpayer, other than on account of capital, but does not include amounts received in respect of expenditures of the taxpayer." Respecting the latter exclusion, CRA referred specifically to:

  • "amounts received or receivable on account of a taxpayer's expenditures, such as volume rebates, received by the taxpayer because these are adjustments to amounts of expenditures as opposed to receipts in respect of income-earning activities;
  • financial assistance received by the taxpayer from a government in respect of expenditures incurred or to be incurred by the taxpayer;"

This represents a "change in position on the meaning of gross revenue for purposes of provincial income allocation from that taken in our letter F2010-0382161I7."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Gross Revenue cost reductions not included 240

19 February 2014 Internal T.I. 2013-0508121I7 - Provincial Income Allocation among Joint Venturers

pro rata share of JV payroll if shared responsibility

Are joint venture participants permitted, for purposes of provincial income allocation, to include their pro-rata share of the wages and salaries incurred by the operator of the joint venture in their individual provincial income allocation calculations? The Directorate stated:

Where the participants agree to share legal responsibility for the salaries and wages of the employees of the joint venture, the participants would include in their respective provincial income allocation calculations their pro-rata share of the salary and wages. …Additionally, where there is a nominee corporation paying the employees of a joint venture and the legal responsibility is not shared among the joint venturers, the central pay master rules in section 402.1 of the Regulations may apply to attribute the salary and wages to the joint venturers.

11 March 2014 Internal T.I. 2013-0506801I7 - Salary and Wages, Part IV of the Regulations

no s. 8 deductions; payroll of PEs outside Canada included

Respecting the application of the definition of "salary or wages" in s. 248(1), CRA stated that "subsection 402(3) of the Regulations contemplates only the salaries and wages paid by the corporation to the employees, which precludes consideration of the deductions available to an employee under section 8."

In confirming that the calculation of "salaries and wages" in Reg. 402(3) includes employment income of a non-resident employees, performing employment duties at a permanent establishment of a Canadian corporation in Canada (including, in turn, "employment benefits (e.g., stock option benefits and deferred amounts under salary deferral arrangements), living and personal allowances, and director's fees, to the extent that these amounts are attributable to services rendered in Canada"), CRA stated that "the definition of ‘salary or wages' in subsection 248(1)… is not limited to those individuals who earn income from office or employment who are resident in Canada."

In further confirming that the employment income of a non-resident employee paid by a corporation resident in Canada and attached to a permanent establishment of the corporation outside of Canada is included in the calculation of "salary or wages" for the purposes of the income allocation rules in Reg. 402(3), CRA indicated that the restricted interpretation of "taxpayer" in Oceanspan (87 DTC 5102) does not "not extend to the meaning of the term "salaries and wages" in Part IV of the Regulations," as confirmed, for example, by the exclusion in Regs. 402(4.1)(e) and 413 of salaries and wages of employees of permanent establishments outside of Canada in specified limited circumstances.

19 November 2013 External T.I. 2012-0455731E5 F - Interprovincial income allocation

where franchisor takes over Ontario franchisee's operations, its royalties from other Ontario franchisees are not assimilated to the Ontario PE

A corporation engaged in a franchising business which had a permanent establishment only in Quebec and which derived royalties from franchisees in all the provinces, took over for the time being the franchise operations of an Ontario franchisee (in order to preserve the business reputation), thereby acquiring an Ontario permanent establishment. After quoting Reg. 402(3)(a) and making a "question of fact" disclaimer, CRA stated (TaxInterpretations translation):

[I]t would appear that the income which is reasonably attributable to the Ontario permanent establishment is that which is derived from the carrying on of the acquired franchise business. The other Ontario income, namely the royalties derived from other franchisees exploiting franchises in that province, would reasonably be attributed to the permanent establishment situate in Quebec from which the franchisor business is carried on.

21 March 1996 Memorandum 960592 (C.T.O. "Interest on Overpayment and Adjusted Business Income")

Interest arising under s. 164(3) due to a refund of an overpayment resulting from a court-ordered reassessment, would not qualify as "gross revenue".

19 May 1994 External T.I. 5-940551 -

Recapture of depreciation does not constitute "gross revenue" for purposes of Regulation 402(3).

15 February 1994 Internal T.I. 7-933546 -

Where an oil and gas company does not have inventory readily available at a specific location and, in order to avoid transportation costs, borrows that product from another company as part of an exchange agreement, the swap under the Law of Bailments will be characterized as a sale and, therefore, will also give rise to a sale for purposes of ss.402(3) and (4) of the Regulations and the definition of "gross revenue".

16 March 1993 T.I. (Tax Window, No. 30, p. 21, ¶2505)

A capital gain from the disposition of property would not be included in a taxpayer's "gross revenue" whose definition in s. 248(1) specifically excludes amounts as or on account of capital.

2 February 1993 Memorandum (Tax Window, No. 28, p. 13, ¶2417)

Amounts allocated to employees by the trustee of an employee profit sharing plan are not salaries and wages for purposes of Regulations 400 or 5202.

Paragraph 402(3)(a)

Subparagraph 402(3)(a)(i)

Administrative Policy

16 January 2017 Internal T.I. 2016-0651411I7 - Reassessment period – transfer pricing

reallocation of gross revenue consequential on s. 247(2) assessment

A s. 247(2) transfer-pricing adjustment (“TPA”) was reassessed by CRA within the three years after the normal reassessment period to increase the sales proceeds on a cross-border sale. CRA then performed a provincial income allocation audit, also within the additional three-year period. The Directorate found that CRA was also authorized by s. 152(4)(b)(iii) to reassess so as to reallocate both the pre-TPA and additional TPA revenue among the provinces – apparently even though this might only affect relative provincial taxable income and not affect federal taxable income (given that the TPA reassessment had already occurred).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(iii) s. 152(4)(b)(iii) permits a reallocation of taxable income among provinces where a taxpayer’s sales revenue has been increased under s. 247(2) 337

Subsection 402(4)

See Also

Westar Mining Ltd.v. The Queen, 92 DTC 6358 (FCA)

Before going on to find that business interruption insurance proceeds were "income derived from the operation of a mine" for purposes of ITAR 28(2), Mahoney J.A. stated (p. 6362) that "the authority has established that 'derived from' is a term of wide import".

Words and Phrases

MNR v. Hollinger North Shore Exploration Co., 63 DTC 1031 (SCC)

royalty received from mine licensee was derived from operation of mine

In accepting the taxpayer's submission that royalties (calculated as apercentage of sales proceeds) received by it from the licensee of its interest in an iron ore body qualified as "income derived from the operation of the mine" for purposes of an exemption for such income generated in the first 36 months following commencement of production, Abbott J stated (at p. 1033) that he accepted:

…that the ordinary meaning of the words "derived from the operation of a mine" is broader than that contended for by appellant, that the word "derived" in this context is broader than "received" and is equivalent to "arising or accruing" (vide Commissioner of Taxation v. Kirk, [1900] A.C. 588 at 592) and that the expression is not limited to income arising or accruing from the operation of a mine by a particular taxpayer.

Words and Phrases

Administrative Policy

15 March 1999 T.I. 982941

Description of criteria applied in determining the destination of a shipment of merchandise for purposes of Regulation 402(4)(a).

26 March 1997 T.I. 963064

Where a corporation having a permanent establishment in two provinces ships a product that is manufactured at its permanent establishment in the first province to its shipping offices in the second province to be shipped to a foreign customer with no Canadian offices, the fact that title to the product passes to the foreign customer in the second province does not alter the conclusion that the destination of the shipment is the foreign jurisdiction (assuming that the vendor knew with some reasonable degree of certainty that the product would be ultimately consumed or re-sold by the foreign customer in its foreign jurisdiction).

30 March 1995 Internal T.I. 7-950610 -

Discussion of Regulation 402(4)(d). For Regulation 402(4)(d) to apply, there is no requirement that there be a transfer of the title to the "some other person" by the customer.

94 C.P.T.J. - Q. 7

Ontario's interpretation of the rules respecting the allocation of taxable income earned by oil and gas companies would suggest that the ultimate destination of the goods governs the allocation. Discussions with Ontario and Alberta are being held in this regard.

Paragraph 402(4)(b)

Administrative Policy

20 September 2012 External T.I. 2011-0430811E5 F - Attribution à un établissement stable

as Reg. 404(4)(c)(ii) prevailed over Reg. 404(4)(b) re ore processed in two provinces, its application would not be affected by the negotiation of the export sales by personnel in the 2nd province

Corporation X Co mines and does initial ore processing in Province A, and further processes the ore and exports it in Province B. would the negotiation by Corporation X of sales from a permanent establishment located, say in Province B, affect the determination of the allocation of taxable income under the rules in Reg. 402(4)(c)(ii). CRA responded:

[P]aragraph 402(4)(c) … would apply to calculate the distribution of gross revenues for a year attributable to a permanent establishment in a province without regard to the fact that the sale was negotiated by a person assigned to the permanent establishment located, for example, in Province B.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(4) - Paragraph 402(4)(c) - Subparagraph 402(4)(c)(ii) application of Reg. 404(4)(c)(ii) to ore processed in two provinces 196

Paragraph 402(4)(c)

Subparagraph 402(4)(c)(ii)

Administrative Policy

20 September 2012 External T.I. 2011-0430811E5 F - Attribution à un établissement stable

application of Reg. 404(4)(c)(ii) to ore processed in two provinces

Corporation X mines and does initial ore processing in Province A, and further processes the ore and exports it in Province B. After quoting Reg. 404(4)(c)(ii), CRA confirmed that this Regulation would apply in any year in which there were salaries and wages paid to employees at both the permanent establishments located in the two provinces, and stated (TaxInterpretations translation):

The question as to whether merchandise is produced and/or manufactured by a taxpayer partly in a particular province and partly in another, is one of fact. Assuming in this instance that the "final product" sold by X Co is not entirely produced or manufactured in Province B (with the constituent concentrate having been produced or manufactured in a permanent establishment situated in Province A and delivered to a permanent establishment situated in Province B for its processing into the product which is sold), it appears reasonable to conclude that the "final product" is produced or manufactured partly in Province A and partly in Province B.

As Reg. 404(4)(c)(ii) prevailed over Reg. 404(4)(b), its application would not be affected by the negotiation of the export sales by personnel at the Province B permanent establishment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(4) - Paragraph 402(4)(b) as Reg. 404(4)(c)(ii) prevailed over Reg. 404(4)(b) re ore processed in two provinces, its application would not be affected by the negotiation of the export sales by personnel in the 2nd province 105

Subsection 402(4.1)

Administrative Policy

31 January 2013 Internal T.I. 2012-0470361I7 - PIA - Non-manufactured goods (ITR 402(4.1))

The Legislative Policy Directorate had addressed a situation where a taxpayer with permanent establishments in a province and in a country other than Canada sold non-manufactured goods to a customer in the other country, with the sale not being taxed in that other country. The Rulings Directorate agreed with the LPD that because of the application of subsection 402(4.1), there were no longer any specific rules that applied to this sale to determine where the gross revenue should be allocated. Accordingly the taxpayer would then allocate the gross revenue on this sale on the basis of where it was reasonably attributable as required by subparagraph 402(3)(a)(i). The Rulings Directorate also noted that

subsection 402(4.1) would apply to shipments of merchandise regardless of whether that merchandise is manufactured or produced by the corporation.

Subsection 402(5)

Administrative Policy

October 1989 Revenue Canada Round Table - Q.26 (Jan. 90 Access Letter, ¶1075)

The words "used in connection with the principal business operations of the corporation" relate solely to the words "rentals or royalties from property". Therefore, if a corporation is formed for the sole purpose of holding long-term investments, thereby receiving dividends and interests, it receives those returns on property that is used in connection with this principal business. Therefore, such dividends and interests are excluded from "gross revenue", and the apportionment in Part IV must be made on the basis of payroll.

Subsection 402(6)

See Also

Les Développements Iberville Ltée v. Agence du Revenu du Québec, 2018 QCCA 1886 (Quebec Court of Appeal)

purpose of inter-provincial allocation rules is for 109% of income to be allocated and taxed

Three affiliated Quebec corporations avoided (or so they thought) most of the Quebec tax on the sale of Quebec real estate at a gain of around $800M (including some recapture) by using a “Quebec year-end shuffle.” In particular, they transferred the properties on a rollover basis to subsidiary LPs, and then transferred their units of those LPs to two numbered companies, also on a rollover basis. The two numbered companies selected February 28, 2006 as their taxation year-end for federal (and Ontario) tax purposes, but March 19, 2006 for Quebec taxation purposes. On March 1, the two numbered companies then acquired units in two Ontario LPs with business income, which had the effect of most of their income being allocated to Ontario for Quebec purposes in accordance with the inter-provincial income allocation formula, so that virtually no Quebec tax was payable on the above gains, which were realized in March between the two year ends.

Schrager JA agreed with the findings in the Court of Quebec that the Quebec GAAR applied on the basis that:

  • establishing different year ends for provincial and federal purposes was contrary to the purpose of the Quebec definition of “fiscal period” in Taxation Act, s. 7 which, in copying the federal definition, did not show any intention to allow different year ends for federal and Quebec purposes as well as contrary to the interprovincial allocation rule (Rule 771R3), whose purpose was to ensure that 100% of a corporation’s income is taxed collectively by the provinces (with Schrager JA disagreeing with a Veracity comment that how the provinces tax the income allocated to them “is beyond the purpose, object and spirit of the Allocation Rules”)
  • the rollover transactions abused the legislative intent of the rollover provisions, which was to defer and not to eliminate tax.

Respecting the abuse of Rule 771R3 (corresponding to the federal Reg. 402(6)) when read in conjunction with s. 7, he stated (at paras. 48, 52, 55-56):

The rationale [of Rule 771R3] is to allocate income amongst the provinces where a corporation carries on business. This is done in order to achieve equitable taxation, meaning that not more than 100% of total income should be taxed. The same rational dictates that no less than 100% of the income should be taxed. …

The definition of fiscal period essentially copied from the federal legislation some years ago cannot in context be characterized as tax policy and certainly not a policy to treat capital gains differently from other provinces or from the federal government. The [definition] … by no means speaks to specifically allowing different financial year-ends for Quebec purposes.

The BCCA [in Veracity] … conclude[s] that because there is no uniform system of provincial taxation in Canada, then something may well “fall through the cracks. Such reasoning may well apply where provinces ascribe different tax treatment to the same category of revenue … .

[However, here] the income, or capital gain is treated the same in Quebec, Ontario and by the federal government for tax purposes so that upon application of the allocation formula, 100% of the income must result in taxation somewhere as the Quebec Court judge correctly decided.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) abuse to use rollover provisions to avoid rather than defer tax 633
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) abuse of Quebec equivalents of ss. 85(1) and 97(2) to avoid (rather than defer) tax 390
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate property bifurcated between capital and income portion on acquisition 94
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense improvements to leased retail premises were not demonstrated to be made only at tenants’ requests 91
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(1) no policy of permitting differing Quebec and federal year ends 185

Administrative Policy

2 February 2018 Internal T.I. 2017-0728331I7 - Central paymaster - partnership

exclusion from payroll allocated to partners for Reg.402(6)

The central paymaster rules in Reg. 402.1 of the Regulations allocate the salaries and wages paid by an employer for services provided to a non-arm’s-length benefiting corporation. Given that Reg. 402.1(5) deems a partnership to be a corporation for the purposes of these rules, the paymaster rules will apply such that the salary or wages earned by an employee of a partnership for the performance of services in a particular province for a benefiting corporation are deemed to be salary or wages paid by non-arm’s length benefiting corporation to an employee of its permanent establishment(s) (if it has them) in the province.

Given that Reg. 402.1(3) provides that the salaries and wages paid by a partnership that are thus deemed to be paid by the benefiting corporation, are deducted from the partnership employer’s salaries and wages paid in the taxation year, such salaries and wages are not included in the salaries and wages that are allocated under Reg. 402(6) to the members of the partnership for their own allocation purposes .

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 402.1 - Subsection 402.1(5) application of the paymaster rules to salaries paid by a partnership 234

7 August 2013 External T.I. 2012-0460511E5 - Reg 402(6) and SIFT Partnerships

CRA stated that Reg. 402(6):

...provides that a corporation's proportionate share of a SIFT partnership's gross revenue and salaries and wages is to be included in the corporation's gross revenue and salaries and wages in subsection 402(3) of the Regulations notwithstanding the fact that some or all of the SIFT income might be subject to Part IX.1 tax.

20 October 2000 External T.I. 2000-0048685 - Allocation Taxable Income Between Provinces

Respecting a query as to a corporation which has a permanent establishment in a province and is also a limited partner in a limited partnership operating in another province, CRA stated:

[E]ach member of a partnership has a permanent establishment in the province where the partnership has a permanent establishment. This applies to both general and limited partners....For the purposes of allocating the corporation's income to various provinces, the gross revenue and salaries and wages of the partnership will be allocated to the province where the partnership has a permanent establishment.

Subsection 402(7)


W.E. Roth Construction Ltd. v. Minister of Finance (2001), 141 OAC 366 (CA)

The taxpayer managed its Ontario properties through four Ontario employees, whereas its Alberta properties were managed by three corporations pursuant to management agreements with it. In finding that the fees paid in Alberta were not deemed to be salary by Regulation 302(7) under the Corporations Tax Act (Ontario), Feldman J.A. noted that in Alberta the modus operandi of the taxpayer was to contract out management of the properties rather than to have employees of the taxpayer manage those properties and that the scheme of the provisions was not to equate all labour whether performed by employees or contractors.

See Also

W.E. Roth Construction Ltd. v. Minister of Finance (Ontario), 99 DTC 5791 (Ont. Sup. Ct. J.)

Coo J. accepted the interpretation in IT-145R that the reference in the Ontario equivalent (s.302(7) of Regulation 183) to work "normally - ... performed by employees of the corporation" indicated that the work done by outside contract personnel must be that which in fact employees of the particular corporation do themselves as part of their assigned tasks and which they cannot do for special reasons affecting discharge by them of their ordinary responsibilities.

Administrative Policy

S4-F15-C1 - Manufacturing and Processing

Application of "normally"

1.27 ... The term normally means commonly, usually, or under normal or ordinary conditions. It would apply in cases where a corporation usually performs certain services or functions itself but for some reason, such as lack of capacity, short-run economic conditions, labour problems, or machinery breakdowns, has sublet all or part of the work to third parties. It is the CRA's view that what is normally performed is determined in the context of a service or function of a particular corporation and not in the context of the industry... . Those corporations operating in more than one province will already have experience in calculating these amounts for purposes of allocating income to various provinces under subsection 402(7) of the Regulations.

Words and Phrases

25 September 2013 External T.I. 2013-0477571E5 F - Partnership - fin. fees and mng fees

service performed by service to partnership must have been previously performed by a partnership employee and relate to a short-term task

A partnership (P1), whose sole permanent establishment is in Province 1, is a member of two partnerships (P2 and P3) whose sole permanent establishment is in Province 2 and 3, respectively. P2 and P3 pay fees to a manager in their respective province for services which were normally performed by their employees. It is not possible to obtain a breakdown of what expenses were incurred by the manager.

After making the simplifying assumption that the partners of P1 were corporations rather than individuals (so that Part IV rather than XXVI of the Regulations applied), CRA noted that a pro rata portion of the salaries and wages of P2 and P3 were attributed to P1, and by P1 to its partners. CRA stated (TaxInterpretations translation) respecting the "normally" test in Reg. 402(7) that "the required conditions for management fees paid to a third party to enter into the numerator as ‘salaries or wages' attributable to a permanent establishment situated in a province" are:

  1. The service or function performed by the service provider must be a service which previously was performed by an employee of the partnership. ...[S]ubsection 402(7)... does not apply where the partnership has no employee.
  2. The task accomplished by the service provider to perform a particular service or function is a short-term one.

As to the portion of the fee "that may reasonably be regarded as payment in respect of [the] services," this was a question of fact. Any profit margin or commission would be excluded under Reg. 402(8) (or 2603(8).)

23 October 1991 T.I. (Tax Window, No. 12, p. 22, ¶1550)

Regulation 402(7) may apply to fees paid to independent truckers.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 409 23

Subsection 402(8)

See Also

Enterprise Foundry (N.B.) Ltd. v. MNR, 64 DTC 660 (TAB)

The taxpayer's business was the sale in Quebec through a Quebec sales force of stoves manufactured by an affiliated company whose manufacturing plant was in New Brunswick ("Enterprise Foundry"). Most administrative functions of the taxpayer's business were handled by Enterprise Foundry in consideration for a fee equal to a percentage of the taxpayer's purchases from Enterprise Foundry. In finding that these fees were commissions for purposes of Regulation 402(7) (now Regulation 402(8)), Mr. Weldon stated (p. 667):

"The word 'commission' in its context in Regulation 402(7) can only mean one thing, in my view, and that is a fee determined as a percentage of some given amount, which is precisely the present situation."

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 400 - Subsection 400(2) employee with general authority to contract based on authorized prices and with authority over inventory in independent warehouse was PE 275