A partnership is the legal employer, with Corp 1 having a 30% partnership interest, and Corp 2 having a 70% partnership interest. The corporation for which the services are performed (the “benefiting corporation”) is not a member of the partnership. Is the partnership a person for purposes of Reg. 402.1(5)? CRA responded:
Subsection 402.1(5) deems a partnership to be a corporation for the purposes of the central paymaster rules. … As a result, the rules in section 402.1 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 the benefiting corporation to an employee of its permanent establishments in the province if the benefiting corporation and the partnership do not deal at arm’s length and the benefiting corporation has a permanent establishment in the province.
In addition, under subsection 402.1(3) … the amount of salaries and wages paid in a taxation year by the partnership employer that is deemed to be paid by the benefiting corporation is deducted from the partnership employer’s salaries and wages paid in the taxation year. … As a result, for the purposes of subsection 402(6), the salaries and wages paid that are allocated to the members of the partnership (Corp 1 and Corp 2) would not include the salaries and wages paid that are deemed by subsection 402.1(3) to be paid by the benefiting corporation.