Principal Issues: [TaxInterpretations translation] Does the installation of cabling, public or residential lines constitute construction activities?
Position: Question of fact.
Reasons: Application of Reg. 238.
December 4, 2007
XXXXXXXXXX Tax Services Office Headquarters Trust Accounts Examination Business and Partnerships Division Attention: XXXXXXXXXX Lucie Allaire, Advocate, CGA
2007-023746
Definition of construction activities in subsection 238(1) of the Regulation
This is in response to your letter of May 14, 2007 requesting our opinion on the application of section 238 of the Income Tax Regulations.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Regulations.
The taxpayer, a corporation that is a subcontractor of XXXXXXXXXX, queries whether it is required to file T5018 slips for payments it makes to subcontractors. The corporation's business involves the installation of cabling, both public and residential lines. According to information on the corporation's website (XXXXXXXXXX), it is also involved in the construction of overhead and underground cables, the installation of equipment, the maintenance and renovation of networks, the interior and exterior pre-wiring of buildings and the installation and servicing of XXXXXXXXXX products.
Our Comments
Subsection 238(2) requires a person to file a T5018 information return in respect of any amount paid or credited by the person in a reporting period in respect of goods or services rendered on their behalf in the course of construction activities if the person's business income for that period is derived primarily from those activities. In our view, the latter requirement is satisfied where a corporation's income from construction activities represents more than 50% of the total income from all activities.
Subsection 238(5) provides certain exceptions to the application of subsection 238(2). Paragraph 238(5)(a) provides that an information return need not be completed if the amount paid is in respect of goods for sale or lease.
Section 238(1) defines "construction activity" to include the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction, or any similar property.
The definition of construction activity is broad and we are of the view that it includes cable installation, construction of underground and aerial cables, maintenance, modification and upgrading of the cable network, installation of indoor and outdoor pre-wiring. XXXXXXXXXX.
Determining whether income from construction activities represents more than 50% of the corporation's total income is a question of fact that requires an examination of all the facts and activities actually performed. Given that there is insufficient information on the totality of the corporation's activities, we are unable to make a definitive determination as to whether the corporation was required to file the slips by virtue of subsection 238(2) with respect to its subcontractors.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Best regards,
Louise J. Roy, CGA
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.