CRA finds that delegating property management to an independent property manager does not affect whether a trust is carrying on its rental operation as a business

CRA confirmed that it was not relevant to the determination, of whether a personal trust that had a portfolio of residential and commercial rental buildings was carrying on a business rather than earning income from property, that all its property management services were carried out through an independent third-party property manager rather than by its own employees or dependent agents.

CRA reiterated its position in IT-434R that “the renting of real property by an individual … will be regarded as a business operation only when the landlord supplies or makes available to tenants services of one kind or another to such an extent that the rental operation has gone beyond the mere rental of real property,” and that, accordingly, other factors such as “[t]he size or number of properties being rented” and “the extent to which their management or supervision occupies the owner's time” are not “to be taken into account in determining if the operation is a business.” Accordingly, CRA appears to continue to consider that a trust, such as a REIT, with a substantial rental operation, will not be considered by it to be carrying on a business, if it only provides basic and customary services to its tenants.

Here, CRA noted that the trust was described as providing cleaning and security services to the commercial tenants, which the Bulletin characterized as being non-basic services, so that a more detailed understanding of the facts might make it possible for CRA to conclude that the trust was carrying on a business.

Neal Armstrong. Summary of 8 October 2021 APFF Roundtable, Q.3 under s. 216(1).