6 July 2005 Internal T.I. 2005-0118301I7 - Activities Carried on Outside Municipality

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Does subsection 149(1.2) apply to exclude, in computing a corporation's "income for the period" for purposes of paragraphs 149(1)(d.5) and (d.6), income from a corporation's activities XXXXXXXXXX ? 2. Do the references to "income" in paragraphs 149(1)(d.5) and (d.6) and subsection 149(1.2) mean "gross income", "net income" or something else? 3. Based on XXXXXXXXXX , are the corporation's activities XXXXXXXXXX within meaning of subsection 149(1.2) of the Act?

Position: 1. The income excluded by subsection 149(1.2) from a corporation's "income from activities carried on outside the geographical boundaries of the municipality" for purposes of paragraphs 149(1)(d.5) and 149(1)(d.6) is to be included in the corporation's "income for the period" when determining whether the corporation derived more than 10% of its income from such activities. 2. References to "income" in paragraphs 149(1)(d.5) and (d.6) of the Act mean "net income". 3. On the facts, it appears that XXXXXXXXXX , pursuant to subsection 149(1.2), not be income from activities carried on outside the geographical boundaries of the municipality for purposes of paragraph 149(1) XXXXXXXXXX .

July 6, 2005

	XXXXXXXXXX  	HEADQUARTERS
	XXXXXXXXXX 	Income Tax Rulings
	Large Case File Manager	  Directorate
R. Maley
	Attention:  XXXXXXXXXX 	(613) 946-3558

		2005-011830

Paragraph 149(1) XXXXXXXXXX - Activities Carried on Outside the Municipality

This is in reply to your memo dated February 22, 2005 pertaining to the application of paragraph 149(1) XXXXXXXXXX to XXXXXXXXXX ("X Co."). In this regard, you have asked that we clarify certain interpretational issues with respect to the application of that paragraph, and also paragraph 149(1) XXXXXXXXXX and subsection 149(1.2) of the Act.

As we understand it, X Co. currently files as a person exempt from tax under Part I of the Act pursuant to subsection 149(1) XXXXXXXXXX of the Act. XXXXXXXXXX.

For the purposes of applying subsection 149(1.2) and paragraph 149(1.) XXXXXXXXXX of the Act to X Co., you have asked the following:

1. In assessing whether a corporation has earned more than 10% of its income from activities carried on outside the geographical boundaries of the municipality within the meaning of paragraphs 149(1)(d.5) and 149(1)(d.6) of the Act, its income from such activities for the period must be compared to its income for the period. Does subsection 149(1.2) exclude income from a corporation's activities XXXXXXXXXX in computing its income for the period for this purpose?

2. Do the references to "income" in paragraph 149(1) XXXXXXXXXX and subsection 149(1.2) mean "gross income" or "net income"?

You have also asked whether, XXXXXXXXXX, we would view X Co.'s activities XXXXXXXXXX within meaning of subsection 149(1.2) of the Act.

Our Views

In our view, the income excluded by subsection 149(1.2) from a corporation's "income from activities carried on outside the geographical boundaries of the municipality" for purposes of paragraphs 149(1)(d.5) and 149(1)(d.6) is to be included in the corporation's "income for the period" when determining whether the corporation derived more than 10% of its income from such activities. References to "income" in paragraphs 149(1)(d.5) and (d.6) of the Act mean "net income".

XXXXXXXXXX

For your information a copy this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.

If you should have any questions about the foregoing comments, please feel free to contact Robin Maley (613-946-3558).

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch