CRA indicates that the Ensite test is applicable in determining whether goodwill is an “active asset”

The adjusted aggregate investment income (AAII) of a CCPC, which is relevant to calculating its business limit, excludes taxable capital gains from the disposition of an “active asset,” which is relevantly defined in s. 125(7) as:

property that is

(a) used at that time principally in an active business carried on primarily in Canada by the particular corporation or by a Canadian-controlled private corporation that is related to the particular corporation … .

Would intangible assets of an active business carried on by a corporation, such as goodwill, customer list, licenses, franchises and quotas, be “active assets” as defined in s. 125(7)? After referring to Ensite, CRA stated:

In our view, where a business relies on such intangible assets to fulfill a requirement which had to be met in order to do business, are integral to the overall operations of the business, and selling or otherwise disposing of that property would have a “decidedly destabilizing” effect on the business operations, then it would be reasonable to conclude that those intangible assets were used in the active business.

Accordingly, such intangible assets could be active assets.

Neal Armstrong. Summary of 2 May 2024 External T.I. 2024-1003831E5 under s. 125(7) – active asset.