Income Tax Severed Letters - 2007-10-19

Principal Issues: Whether payment of a lump sum to a retiree's spouse in lieu of the discontinuance of post retirement benefits under a PHSP is taxable

Position: No

Reasons: Long-standing CRA position that such payments are not income from any source that is taxable under the Act. Subsection 5(1) does not apply to include the payment in income as the taxpayer is not an employee or officer of the Company. The employer/employee relationship was severed upon the retirement and death of the taxpayer's spouse. The payment is not in the nature of salary, wages or other remuneration. Subsection 6(3) does not apply as the amount will not be received in satisfaction of an obligation arising out of an agreement made by the taxpayer with the payee immediately prior to, during or immediately after a period that the payee was an employee of the payer.

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income. This ruling is the same as previous rulings given. See 2006-0199731R3 and 2006-0170321R3.