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.
2002-017430
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 November 7, 2002, wherein you asked us for clarification on the application of the "specified investment business" definition in subsection 125(7) of the Income Tax Act (Canada) (the "Act"). We also acknowledge our telephone conversation on January 9, 2003 (XXXXXXXXXX/Nelson).
Your understanding is that a corporation whose sole activity is carrying on the business of leasing property cannot be carrying on a specified investment business unless the property being leased is real property. 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, if 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.
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.
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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