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:
1. Would a corporation leasing licensed taxis be carrying on a specified investment business?
Position:
1. Question of fact. General comments given.
Reasons:
1. Reading of the relevant legislation and certain municipal codes re: taxis.
2002-016855
XXXXXXXXXX Allan Nelson, C.M.A.
(613) 443-7253
January 16, 2003
Dear XXXXXXXXXX:
Re: Technical Opinion Request
We are writing in reply to your letter to us dated October 9, 2002, wherein you asked us whether a corporation would be carrying on a "specified investment business" as defined in subsection 125(7) of the Income Tax Act (Canada) (the "Act"). We also acknowledge our telephone conversations on January 7 and 9, 2003 (XXXXXXXXXX/Nelson).
Your letter states that your client is a corporation whose sole income is derived from the leasing of taxi licenses. You also refer to a technical interpretation dated October 9, 1996 (our file #962919), where we indicated that a particular corporation's taxi license leasing activities would be a specified investment business within the meaning of that term in subsection 125(7) of the Act.
As explained in Information Circular 70-6R5, when your situation involves a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of some assistance to you.
Subsection 125(7) of the Act defines "specified investment business" to mean
...a business (other than...a business of leasing property other than real property) the principal purpose of which is to derive income (including interest, dividends, rents and royalties) from property but...does not include a business...where
(a) the corporation employs in the business...more than 5 full-time employees, or (b) any other corporation associated with the corporation provides...managerial... or other similar services to the corporation...and the corporation could reasonably be expected to require more than 5 full-time employees if those services had not been provided;
In our file #962919, we responded to an external enquiry based on the limited facts provided and focused on whether the revenue earned was income from property for the purposes of the specified investment business definition in subsection 125(7) of the Act.
Since then, and in response to your enquiry, we have obtained additional information concerning leasing taxis and taxi licenses.
As discussed with you on January 9, 2003 (XXXXXXXXXX/Nelson), it is agreed that it is common for certain municipal regulations to prohibit the severing of taxi licenses from the taxis to which they relate. Consequently, in those instances it is the licensed taxis that are leased and not merely the taxi licenses. This fact is consistent with the terms of the blank sample lease agreement between the taxi owner and the lessee appended to your
October 9, 2002, letter to us. That agreement states, inter alia,
? "...the Lessor is the owner of a taxicab...",
? "...the Lessor has agreed to lease the said taxicab to the Lessee and the Lessee has agreed to lease the said taxicab from the Lessor...",
? "The Lessor shall provide to the Lessee the taxicab above referred to, equipped, inspected, approved and registered in accordance with the said By-Law...",
? "The Lessor is responsible for maintenance of and insurance on the taxicab...",
and
? "This lease pertains to the above vehicle and expires upon the sale or other disposition of such vehicle...".
In light of the above, you agreed that we should only address the general question of whether a particular corporation's activities, which consist solely of leasing licensed taxis, would constitute a specified investment business, within the meaning of that term in subsection 125(7) of the Act. In particular, you have asked us to comment on the applicability of the exception in that definition for "a business of leasing property other than real property". Further, in preparing our response we can assume
(1) the exceptions in either of paragraph (a) or (b) of the specified investment business definition in subsection 125(7) of the Act have not been met (see above),
(2) the parties have entered into a long-term lease for each of the taxis whereunder the lessee pays a fair market value flat monthly rental fee to the taxi owner (i.e., the lessor) for the use of the lessor's licensed taxi,
(3) as noted above, the relevant municipal regulations prohibit the severing of taxi licenses from the taxis to which they relate, and
(4) the principal purpose of the corporation's business is to derive income from property (i.e., the rental fees for use of the licensed taxis).
Based on the limited facts provided and the above assumptions, in our view, the business of leasing licensed taxis would not constitute leasing of real property and such a business could be excluded from the specified investment business definition by virtue of being "a business of leasing property other than real property". These matters always involve questions of fact, and therefore any such determination can only be made after reviewing all of the relevant information with respect to a particular taxpayer's operations.
As agreed during our January 9, 2003, telephone conversation (XXXXXXXXXX/Nelson), we are not commenting specifically on the nature of your client's business operations (which appears to be incorrectly described as the leasing of taxi licenses, as opposed to the leasing of taxis). There is some uncertainty as to how your client's business operates and in particular, there are questions as to who are the legal and the beneficial owners of the taxis. Since these matters involve questions of fact and we are not privy to all of the relevant facts for your client, we are unable to comment further at this time. As noted above, should you require further assistance on this matter, we would suggest that you submit all relevant facts and documentation to the appropriate Tax Services office for its review.
In accordance with paragraph 22 of Information Circular 70-6R5, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling, nor are they binding on the Canada Customs and Revenue Agency.
We hope the above will be of assistance to you.
Yours truly,
Milled Azzi, C.A.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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