Mr. X, age 35 year, owns 15% of the shares of Transportco (representing 15% of the votes and value). Transportco earns all or substantially all of its income from a business that sources drivers on contract for logistics companies. Mr. X is not actively involved in the business.
Will s. (a)(i) of “excluded shares” apply such that the shares of Transportco cannot qualify as “excluded shares”? What businesses (e.g., selling life insurance or providing investment products) would be considered to be engaged in the provision of services?
[T]he safe harbour for excluded shares will not apply to the shares of Transportco held by Mr. X by reason of subparagraph (a)(i) of the definition if 90% or more of its business income is from the provision of the services as described in Question 6(a), being the provision of drivers to logistics companies. …
Where the safe harbours do not apply in a particular case, the general underlying rationale is that in such circumstances, the most appropriate test for determining whether the income of a specified individual from a related business should be excluded from split income should be based on the general test of whether the amount received is a reasonable return. …
[I]n most cases, the distinction between whether income is from the provision of services or is other income should be clear. In cases of uncertainty, we will be prepared to provide guidance as required based on a review of all of the relevant circumstances and our understanding of the rationale for the safe harbour exclusions.