2017-0691361E5 Reporting obligations – T4A and T5018

Principal Issues: In the situation described, are the amounts paid by a corporation to an arm’s length contractor for XXXXXXXXXX reported on Form T4A or T5018.

Position: In the situation described, if the corporation’s business activities are primarily derived from construction activities, payments made by the corporation for goods or services rendered on behalf of the corporation in the course of those activities would be reported on Form T5018. Otherwise, payments made by the corporation for services rendered would be reported on Form T4A.

Reasons: Question of fact.

Author: Agarwal, Lata
Section: 153(1), Regulation 200 and 238

XXXXXXXXXX                                                                                                                 2017-069136
                                                                                                                                         Lata Agarwal, CPA CMA, MBA
July 17, 2017

Dear XXXXXXXXXX:

Re: T4A vs. T5018

This letter is in response to your email dated February 24, 2017, in which you are seeking our view on whether you are required to file Form T4A, Statement of Pension, Retirement, Annuity, and Other Income, pursuant to subsection 200(1) of the Income Tax Regulations (“Regulations”) or Form T5018, Statement of Contract Payments, pursuant to subsection 238(2) of the Regulations, in respect of the payments made by you to a subcontractor.

Based on the information in your emails and our related phone conversation (Agarwal/XXXXXXXXXX), you describe your corporation as a XXXXXXXXXX company that provides services to XXXXXXXXXX. In this regard, you describe your business activities to include XXXXXXXXXX. For example, your corporation may be hired by a contractor to carry out XXXXXXXXXX activities in the course of XXXXXXXXXX construction. XXXXXXXXXX, your corporation hires a subcontractor to perform XXXXXXXXXX work. XXXXXXXXXX.

You have asked for clarification as to whether your corporation is required to file an information return under subsection 200(1) of the Regulations (Form T4A) or an information return pursuant to subsection 238(2) of the Regulations (Form T5018), for the payments the corporation makes to the subcontractor XXXXXXXXXX.

OUR COMMENTS

This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations. 

Pursuant to subsection 200(1) of the Regulations, a person who makes a payment described in subsection 153(1) of the Income Tax Act (“Act”), which includes an amount paid for fees, commissions or other amounts for services, must file an information return in the prescribed form (Form T4A) in respect of the payment, unless an information return has been made pursuant to, among others, section 238 of the Regulations in respect of the payment. The reporting obligation for this information return is in respect of a calendar year.

Under subsection 238(2) of the Regulations, every person or partnership that pays or credits, in a reporting period, an amount in respect of goods or services rendered on their behalf in the course of construction activities shall make an information return in the prescribed form (Form T5018) in respect of that amount, if the person's or partnership's business income for that reporting period is derived primarily (more than 50% of a business' income-earning activities) from those activities. In this regard, the reporting period may be either on a calendar year or fiscal year basis. Once a reporting period is chosen, it cannot be changed unless the Minister authorizes it.

In general terms, the reporting obligation of a person or partnership for a reporting period under subsection 238(2) in respect of Form T5018 requires that the:

*    business activities of the person or partnership be derived primarily from construction activities; and 

*    amount that is paid or credited be in respect of goods or services rendered on person’s or partnership’s behalf in the course of construction activities. 

The term “construction activities” is defined in subsection 238(1) of the Regulations to include the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction, or any similar property. 

(a)    The determination of whether a corporation is engaged in construction generally takes into account factors such as: whether the overall activities carried out by the particular corporation fall within the meaning of the term “construction” as commonly used and accepted in the construction industry; and

(b)    the use of construction equipment such as trucks, tractor trailers, asphaltic concrete rollers, etc., in the activities mentioned in (a) above, by the particular corporation.

Such activities are considered to be those normally associated with the on-site fabrication and erection of buildings, roads, bridges, parking lots, driveways, etc., which are intended to be permanently affixed to the land on which they are built.

We have provided a list of examples of “construction activities” at the following link: http://www.cra-arc.gc.ca/tx/bsnss/cntrct/frmt5018/menu-eng.html.

It is a question of fact whether a particular activity is a construction activity and whether a corporation's business income for a reporting period is derived primarily from such activity. The business activities that you have described suggest that they could be considered to be carried out in the course of a construction undertaking. Accordingly, if the corporation’s business income is primarily derived from construction activities for the reporting period, the corporation is required to file an information return (Form T5018) for any payment made in the reporting period in respect of goods or services rendered on the corporation’s behalf in the course of those activities. Otherwise, payments made by the corporation for services rendered would be reported on Form T4A in respect of the preceding calendar year.

We trust that these comments will be of assistance. 

Yours truly,

Bob Naufal
Manager 
Administrative Law Section
International Division 
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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