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Attention: XXXXXXXXXX
Dear Sirs:
RE: Personal Services Business
This is in reply to your letter wherein you requested a technical interpretation concerning the application of subsection 18(1)(p) of the Income Tax Act ("Act").
Your request appears to relate to a specific proposed transaction with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.
In our opinion, a corporation which carries on a personal services business (as defined by paragraph 125(7)(d) of the Act) is entitled pursuant to subparagraph 18(1)(p)(ii) of the Act to deduct the amount of a retiring allowance (as defined by subsection 248(1) of the Act) paid to an incorporated employee (within the meaning assigned by paragraph 125(7)(d) of the Act), provided that the retiring allowance would be deductible in computing its income if the income of the corporation were from a business other than a personal services business.
In our opinion, paragraph 18(1)(p) of the Act does not deny the deduction of employer contributions (made by a corporation which carries on a personal services business as defined by paragraph 125(7)(d) of the Act) to a registered pension plan in respect of an incorporated employee (within the meaning assigned by paragraph 125(7)(d) of the Act) otherwise deductible under paragraph 20(1)(q) of the Act. Our view would be the same, whether the corporation which carries on the personal services business deals at arm's length or not with the corporation to which the services are rendered.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate