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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Short term loans active business income ?
Position: No
Reasons: 125(7) Specified investment Business
963347
XXXXXXXXXX C. Tremblay
October 22, 1996
Dear Madam:
Re: Small Business Deduction
This is in reply to your letter of September 10, 1996, wherein you request our opinion on whether a Canadian controlled private corporation (a "CCPC") that lends money, essentially short term loans to real estate agents secured by the assignment of their real estate commissions earned but not yet paid, is entitled to the small business deduction. The CCPC has less than 6 full time employees.
The situation that is described appears to involve a series of actual completed transactions involving specific taxpayers; consequently, your questions should be directed to your District Services Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.
In order to be entitled to the small business deduction, the corporation must carry on an "active business". "Active business" is defined in subsection 248(1) of the Act as any business carried on in Canada, other than a "specified investment business" or a "personal services business". These latter two terms are defined in subsection 248(1) of the Act and draw their meaning from definitions of the same in subsection 125(7) of the Act.
In our view, a business whose principal purpose is to derive income from property, which includes interest income, is considered to be a specified investment business unless the corporation employs in the business throughout the year more than five-full time employees. Accordingly, in our view, the CCPC in your example would not be entitled to the small business deduction.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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