17 July 2001 External T.I. 2001-0082505 - COMMENCEMENT OF BUSINESS OPERATIONS

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:

Taxpayer contemplating establishing a business and expects to incur various costs outside Canada, including transportation, living costs, research costs with respect to suppliers and merchandise, and feasibility costs. Taxpayer wishes to know if the costs are deductible.

Position TAKEN:

Question of fact. Insufficient information provided to determine if the business had commenced business operations.

Reasons:

Insufficient information.

XXXXXXXXXX 2001-008250
T. Young, CA
July 17, 2001

Dear XXXXXXXXXX:

Re: Business Expenses

This is in reply to your letter of April 28, 2001, requesting our views on whether expenses for research related to a business you are planning to establish.

In your letter, you state that you are planning to travel to Guyana to research suppliers and the availability of preferred merchandise. You expect to incur transportation costs, living costs, research costs and feasibility costs. You indicated that you have not yet registered your business.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. However, we are prepared to provide the following general comments, which may be of assistance to you.

In order to determine if expenditures are deductible as business expenses, it must first be determined whether a taxpayer was carrying on a business. Our general position on the commencement of business operations is set out in IT-364, "Commencement of Business Operations", to which you referred in your letter. Paragraph 2 of IT-364 states:

2. It is not possible to be specific about the point in time when a contemplated business becomes an actual business. Generally speaking, it is the Department's view that a business commences whenever some significant activity is undertaken that is a regular part of the income-earning process in that type of business or is an essential preliminary to normal operations. In order that there be a finding that a business has commenced, it is necessary that there be a fairly specific concept of the type of activity to be carried on and a sufficient organizational structure assembled to undertake at least the essential preliminaries. This requirement is applicable whether the projected business is intended to be a continuing one or is to be a single transaction in the form of an adventure in the nature of trade. Where an activity consists merely of a review of various business possibilities in the expectation or hope that information will be obtained to justify going into a business of some kind, such an activity does not represent the commencement of a business. A business would be reviewed as being merely contemplated for the future if no serious or reasonably continuous efforts are being made to begin normal business operations. The comments in this paragraph do not apply, of course, to an existing business that is considering expansion or diversification as distinct from the undertaking of a new and separate business.

In order to make a determination of whether business has commenced and what expenses, if any, would be deductible, we would need more information relating to the specific costs you have incurred and the activities you have undertaken to date. Your local Tax Services Office can assist you with the determination.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate