A corporation owned 50-50 by two spouses (Family 1) operates a hair salon which derives more than 90% of its income from the provision of services, whereas a second corporation owned 50-50 by two spouses (Family 2) operates a pizzeria that does not derive more than 90% of its income from the provision of services. All are over 25.
CRA indicated that the shares of the corporation operating the pizzeria business will qualify as excluded shares of both spouses, whereas the shares of the other corporation would not so qualify since more than 90% of its income is from the provision of services. CRA stated:
Where a business has income from the provision of both services and non-services (including from a sale of tangible or in some circumstances, intangible property) such as a business carried on by plumbers, mechanics or other contractors that sell replacement parts or materials, the income from the provision of non-services will generally be taken into account in determining whether shares of a corporation are excluded shares of an individual unless such income can reasonably be considered to be necessary but incidental to the provision of the services (for instance an office cleaning service if it billed separately for the cleaning supplies used).
We are in the process of preparing examples to illustrate how the determination of whether less than 90% of the income of a corporation is from the provision of services is made.