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 .