Principal Issues: Will CRA follow the decision in 489599 B.C. Ltd and apply it in the context of paragraphs (c) of the definition of "investment business" in subsection 95(1)?
Position: Yes.
Reasons: To be consistent with the interpretation of the similar test in subsection 125(7).
December 14, 2008
Kitchner/Waterloo Tax Services Office HEADQUARTERS
Tax Avoidance Section Income Tax Rulings Directorate
Shelley Lewis
Attention: Kathie Cameron (613) 957-21182008-029916
More than Five Employee Test in Paragraph (c) of the Definition of Investment Business
This is in response to your correspondence of November 5, 2008 wherein you inquired whether we would be following the recent Tax Court of Canada decision of 489599 B.C. Ltd. v. The Queen, 2008 TCC 332 and applying it to paragraph (c) of the definition of "investment business" in subsection 95(1) of the Income Tax Act (the "Act").
At the 2008 Canadian Tax Foundation Round Table the C.R.A. announced that we accept the decision in 489599 B.C. Ltd, where Justice Campbell determined that the requirement for "more than five full time employees", in the definition of "personal services business" in subsection 125(7), could be met with five full time employees and two part time employees. We noted that this interpretation is also applicable in determining whether or not the "more than five full-time employees" requirement in the definition of "specified investment business" in subsection 125(7).
At the December 2008 Tax Executives Institute Liaison meeting, we advised the participants that we would also be applying the decision in 489599 B.C. Ltd. to the "more than five employees full time" requirement in paragraph (c) of the definition of "investment business" where a foreign affiliate employs five full-time employees and one part time employee. This position supersedes the positions set out in paragraph 15 of IT-73R6 and any technical interpretation issued by the CRA prior to the decision rendered in 489599 B.C. Ltd.
We trust these comments are of assistance.
Olli Laurikainen
for Director
International and Trusts Division
Income Rulings Directorate
cc. Minh-Thi Truong
International & Large Business Directorate/Aggressive Tax Planning Division