CRA confirms that active business income includes income from property that (having regard to Ensite) is held principally for the purpose of producing active business income

The definition “income of the corporation for the year from an active business” in s. 125(7) includes, in para. (a) thereof, the corporation’s income for the year from an active business carried on by it, including any income for the year pertaining to or incident to that business, other than income for the year from a source in Canada that is a property (within the meaning assigned by s. 129(4)). Subpara. (b)(ii) of the definition “income” or “loss” of a corporation for a taxation year from a source that is a property in s. 129(4) does not include the income or loss from any property that is used or held principally for the purpose of gaining or producing income from an active business carried on by it.

In response to a question to this effect, CRA confirmed that, as a result, where a property of a CCPC that is used or held principally for the purpose of gaining or producing income from its active business, any income from that property would qualify as “income of the corporation for the year from an active business”, as defined in s. 125(7). Before so concluding, CRA referred to the Ensite test of whether property was used or held by a corporation in the course of carrying on a business, under which the “property had to be employed and risked in the business to fulfil a requirement which had to be met in order to do business” and that “[i]f the withdrawal of the property would have a decidedly destabilizing effect on the corporate operations, the property would generally be considered to be used in the course of carrying on a business.”

Neal Armstrong. Summary of 3 December 2024 CTF Roundtable, Q.14 under s. 129(4) – “income” or “loss”.