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:
Cessation of Business
Position:
The determination of whether a corporation is a specified investment business can only be determined after a review of all the facts. However, generally when the nature of a business has changed to one of investment activity only, it would generally fit the definition of a specified investment business.
Reasons:
XXXXXXXXXX 5-970191
April 10, 1997
Dear XXXXXXXXXX:
Re: Income from an Active Business
This is in reply to your letter of December 30, 1996 in which you request a technical interpretation with respect to income from an active business.
The situation described in your letter appears to be an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Where a completed transaction is involved, the enquiry should be addressed to your local District Tax Services Office. Consequently, we can only offer the following general comments.
Subsection 248(1) of the Income Tax Act (the "Act") defines an active business and business as follows:
"active business" in relation to any business carried on by a taxpayer resident in Canada, means any business carried on by the taxpayer other than a specified investment business or a personal services business.
"business" includes ..., an adventure or concern in the nature of trade ...".
As noted in paragraph 9 of Interpretation Bulletin IT-73R5 (copy enclosed) it is a question of fact whether or not a corporation has ceased to carry on a business. However, this generally occurs when the taxpayer has ceased the normal activities of the business with little likelihood of staring them up again in the near future.
As noted in IT-73R5 a "specified investment business" carried on by a corporation in a taxation year is defined in subsection 125(7) of the Act to be a business the principal purpose which is to derive income from property. Such income includes interest, dividends, rentals from real estate and royalties. The determination of the principal purpose test of a corporation must be determined annually after all the facts relating to that business carried on by that corporation in that year have been considered and analyzed. Accordingly, the determination of whether your corporation is a specified investment business can only be determined after a thorough examination of all the facts, and the determination must be done annually based on the operations of the corporation. However, in our view, when the nature of a business has changed to one of investment activity only, it would generally fit the definition of a specified investment business.
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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