J. Favreau repeats the law that the intention of the parties is not relevant to deciding whether a corporation is a “personal services business” (to be denied the small business deduction under ITA s. 125(1) because of the definition of “active business carried on by a corporation” in s. 125(7) and to have restricted allowable expenses under ITA s. 18(1)(p)) But the common law tests are relevant:
[63] The criteria developed in the common law, to wit the ownership of tools, the expectation of profit, the risks of loss and integration in the business, can be used in the assessment of a concluded contract by virtue of the civil law of Quebec since they constitute indexes for classification among others.
[64] By contrast, the criterion of intention of the parties to the contract is not to be analysed in the context of the determination of the existence of a PSB. The decisions standing as authority on this point are, notably, 609309 Alberta Ltd. Canada, 2010 CCI 166 (CanLII), 1166787 Ontario Ltd. c. Canada, 2008 CCI 93 (CanLII), Dynamic Industries Ltd. c. Canada, 2005 CAF 211 (CanLII) et758997 Alberta Ltd. c. Canada, 2004 TCC 755 (CanLII). It is this way because the notion of PSB is an anti-avoidance rule aimed at denying to certain corporations the tax rate reduction applicable to small businesses and the tax treatment associated with them. The reduced tax rate and the sought after tax deferral could not be obtained unless the parties had the intention to enter an independent contractor relationship. …