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: Whether the shares of a particular corporation are shares in a small business corporation.
Position: It is a question of fact but in this case it is likely that the shares do not qualify.
Reasons: Each asset of a corporation must be looked at separately in determining that "all or substantially all of the fair market value of the assets...is attributable to assets that are used principally in an active business carried on primarily in Canada..." Land and each building or structure on the land are separate assets.
XXXXXXXXXX 1999-001393
J. E. Grisé
March 27, 2000
Dear XXXXXXXXXX:
Re: Small Business Corporation
This is in reply to your letter of November 1, 1999, requesting guidance as to whether real property, consisting of land and buildings, (the property) in a particular situation is used principally in an active business carried on primarily in Canada for purposes of determining whether a particular corporation is a "small business corporation" defined in subsection 248(1) of the Income Tax Act.
You outlined a situation involving a Canadian-controlled private corporation that operates in the agribusiness sector but is not itself a farming operation. The corporation is involved in the buying, marketing, auctioning, selling and exporting of livestock. At any time, there is an inventory of unsold livestock held as inventory or in anticipation of an auction. The business operates in an agricultural area on the fringe of a small village. The business employs 10 to 15 full and part time employees. The property appears to have originally been a farm with approximately 124 acres remaining. The property is all on one registered deed, but 21 acres is zoned commercial while the remainder is zoned agricultural.
For discussion purposes, you have indicated that the property represents about 54% of the fair market value of all the corporation's asset. Furthermore, the property's total fair market value is allocated as follows:
- buildings and other structures 50%
- 21 acres zoned commercial and used in the business 17%
- 85 acres rented for crops to a farmer 30%
- 18 acres of bush and swamp 3%
The fair market value of the 124 acres represents about 27% of the corporation's fair market value of all of its assets.
The particular circumstances in your letter on which you have asked for guidelines appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Agency.
The determination of whether real property is used principally in an active business carried on primarily in Canada is a question of fact. Where reference is made to an asset being used "principally" in an active business, the asset will meet this requirement if more than 50% of the asset's use is in an active business. In our view, when determining whether assets will meet the 50% or more requirement, the test has to be applied on a property by property basis. The land and each building or other structure on the land are separate properties or assets. Accordingly, the requirement will not be met because the land in the situation you have presented, is not being used principally in an active business.
We hope our comments are helpful.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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