Excluded Shares - Service Business

Hi Everyone,

Does anyone know of a CRA or Finance resource that actually defines what constitutes a service business for purposes of the definition of Excluded Shares under the TOSI rules? I read through this CRA Guidance Article but it only provides examples of the gross business income test without providing a clear definition of service vs. non-service business income.

I have a client who is a software developer. He writes software and sells his work to clients. My initial thought is that this is clearly a service business. However, he technically does provide a product that his clients can take and use for an extended period of time similar to a tangible product. It’s just that it’s software and not tangible.

It just seems like such an odd requirement for excluded shares. Why are service businesses prevented from being able to meet the excluded share definition? If you’re a convenience store, you’re in luck, but if you’re a nail salon, too bad for you.

Has there been any communication from Finance as to why they structured it this way?