QUESTION I 94
Services Between Related Canadian Corporations - Paragraph 69(1)(b)
Both Company A and Company B, a wholly-owned subsidiary of Company A, are taxable Canadian corporations. Company A, because of its size and structure, provides certain services for the benefit of Company B. Company A and Company B have entered into a service agreement which requires Company A to perform the services and requires Company B to compensate Company A for providing the services.
Assuming that the compensation provided by the service agreement is sufficient for Company A to recover its cost of providing the services, would paragraph 69(1)(b) of the Act apply to deem Company A to have received fair market value consideration for providing the services?
DEPARTMENT'S POSITION
Generally, paragraph 69(1)(b) of the Act will not apply to the provision of services. Where, however, in addition to providing services, Company A supplies other materials or goods with the result that it may be considered to have "disposed of anything", paragraph 69(1)(b) of the Act could apply to the disposition of such materials or goods.
Prepared by: H. Woolley