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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Interpretation of paragraph (a) of the definition of "specified investment business" in subsection 125(7) of the Income Tax Act .
Position: The exclusion in paragraph (a) does not require a corporation to employ more than 5 full time employees from the beginning of the year to the end, but rather requires the corporation to employ more than 5 full time employees throughout the period in which there is a business.
Reasons: Wording of the Act permits such an interpretation.
XXXXXXXXXX
2002-014493
Karen Power, CA
(613) 957-8953
June 18, 2002
XXXXXXXXXX:
Re: Specified Investment Business
We are writing to advise you of a change in our position with respect to the interpretation of the expression "throughout the year" in the definition of "specified investment business" in subsection 125(7) of the Income Tax Act (the "Act"). This position was expressed to you in our recent letter dated January 22, 2002 (#2001-009644).
The change concerns the situation in which a rental company that for many years has owned a substantial portfolio of rental properties and has always employed more than five full time employees ceases operations. Specifically you had enquired whether any recapture of capital cost allowance resulting from the sale of the rental properties would be considered active business income.
Where the principal purpose of a business carried on by a corporation is to earn income from property, it will generally be considered a specified investment business, as defined in subsection 125(7) of the Act, unless the corporation satisfies one of the exceptions found in paragraph (a) or (b) of that definition.
Paragraph (a) excludes from the definition of a specified investment business, a corporation that employs in the business throughout the year more than 5 full-time employees. Upon re-examination, we are now of the view, that paragraph (a) does not require a corporation to employ more than 5 full time employees from the beginning of the year to the end of the year, but rather requires the corporation to employ more than 5 full time employees throughout the period in which the corporation carries on a business in the year.
Consequently, in the situation described above, a corporation would be able to consider the recapture of capital cost allowance as active business income, provided the corporation employed more than five full time employees throughout the period which commences at the beginning of the year and ends on the day the corporation has ceased to carry on the rental business.
We trust our comments will be of assistance to you.
Mickey Sarazin, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content