CRA applies its guidelines on cash as an active business asset to the “specified small business corporation” test

CRA set out general guidelines on when cash held by a corporation would be considered to be used in an active business carried on by it for purposes of the “specified small business corporation” definition in Reg. 4901(2) (respecting qualification of its shares for RRSPs). The listed factors (which are similar to those applied by CRA in other contexts) included:

  • Cash or near cash property is considered to be used principally in the business if its withdrawal would destabilize the business.
  • Cash which is only temporarily surplus to the business needs may qualify.
  • Cash balances which accumulate only to be depleted in accordance with the annual seasonal fluctuations of the business will generally qualify – but a permanent balance in excess of the company's reasonable working capital needs will generally not qualify.
  • Funds will not qualify by virtue only of being accumulated to purchase capital assets or repay long-term debt.

Neal Armstrong. Summary of 25 January 2018 External T.I. 2017-0717561E5 under Reg. 4901(2) - “specified small business corporation”.