Words and Phrases - "normally"
Income Tax Folio S4-F3-C2, Provincial Income Allocation, 30 January 2024
Meaning of “normally”
2.63 The term normally is not defined for the purposes of subsection 402(7) of the Regulations. It is the CRA’s view that the term “normally” in subsection 402(7) has two conditions:
- The service or function performed by the service provider must be one that is already performed by an employee of the corporation. Subsection 402(7) will not apply in situations where the corporation does not have any employees.
- The need for the individual service provider to perform a particular service or function is short-term.
For example, where a corporation’s employees usually perform a certain service for the corporation but for some reason, such as short-term economic conditions or labour problems, the corporation entered into an agreement with a service provider to perform such service, the fee paid to the service provider would be deemed to be salary paid in the year by the corporation. In addition, the portion of the fee paid that may reasonably be regarded as a payment in respect of services rendered at a particular permanent establishment of the corporation is deemed to be salary paid to an employee of that establishment.
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.
S4-F15-C1 - Manufacturing and Processing
1.25 ... The simplest method generally will be an analysis of the T4 slips. ... This will also be acceptable for many corporations whose tax years do not end on December 31, provided that the total of salaries and wages as shown by the T4 slips approximates the total salaries and wages for the fiscal year. ... Where amounts are allowed as a deduction at year end as bonuses that are payable to specific employees, these amounts would form part of the cost of labour.
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.
Determination on net basis
Double counting problem – cost of labour
1.28 A problem will occur in a group of associated corporations where one corporation acts as a paymaster for the others. To mitigate the double counting effect that will occur when two associated corporations include the same salaries and wages in their cost of labour, the CRA will allow the corporation paying the salaries and wages to treat these amounts as net of amounts received or receivable from associated corporations in respect of these expenses, provided that this is done for both qualified activities and non-qualified activities carried on by the employees.