XCo employs four people full time in its business of renting out buildings, and YCo, which is associated with it, provides the management, administration and maintenance services of two full time employees to XCo for a fee. Would the exception in para. (b) of the definition apply – and would the answer change if the services provided by YCo to XCo were performed by an employee working full time on maintenance work for XCo, an employee working 50% of the time as a receptionist for XCo and another employee working 50% of the time doing secretarial work for X Co? CRA responded:
The fact that the services rendered to XCo by YCo require the full-time employment of two employees is an indication that the exception in paragraph (b) … may apply since it may be reasonable to consider that XCo would have required six full-time employees if the services had not been rendered by YCo. …
In the second situation … we would need to determine how many full-time employees XCo would hire to replace the services provided by YCo. For example, Xco might have hired one person to do the receptionist and secretarial work for a full day's work, especially if XCo needed a receptionist for the entire day and could not use one of its four employees for reception and secretarial work. If XCo could demonstrate such a situation, as well as the need for a full-time maintenance person in addition to the other four full-time employees, we are of the view that it would be reasonable to consider that XCo would have needed six full-time employees [under para. (b)].