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.
Principal Issues: Whether the leasing of portable trailers and equipment to XXXXXXXXXX operators on a temporary basis would constitute carrying on a business that is a "specified investment business" for purposes of s.125 of the Act.
Reasons: These trailers and equipment are not real property. The business would be excluded from the definition of SIB by virtue of being a business of leasing property other than real property.
P. Massicotte, CA, M.Fisc.
November 16, 2004
Re: Small Business Deduction
We are writing in reply to your email of June 18, 2004 requesting our views in connection with the eligibility of a corporation to claim the small business deduction under section 125 of the Income Tax Act (the "Act") in a situation where the corporation ("Aco") carries on a business of leasing property consisting of equipment and portable trailers to XXXXXXXXXX operators. You provided the following additional facts during our telephone conversation (Massicotte/ XXXXXXXXXX):
1. The portable trailers that Aco leases to its customers are designed and constructed for easy removal from one place to another and are regularly transported by truck from one XXXXXXXXXX to another as part of Aco's leasing business.
2. The portable trailers are placed directly on the ground or on a platform made of wood or concrete but are not permanently attached to the land or any other structure on the lessee's property. The portable trailers can at any time be easily removed from the lessee's property without damage or alteration thereto. They are leased for the purpose of providing temporary shelter for the lessee's workers XXXXXXXXXX.
3. The lease contracts provide that the ownership of the portable trailers remains with Aco and does not pass to the lessee throughout the period of the lease. It is the intention of the parties that the portable trailers be used for temporary periods only.
4. Once the XXXXXXXXXX is completed, the portable trailers are removed by Aco from the lessee's property and transported to another XXXXXXXXXX. You indicate that the portable trailers are generally leased for a period of 2 or 3 weeks.
5. The equipment leased by Aco consists of lightweight equipment used by XXXXXXXXXX operators on a temporary basis (such as XXXXXXXXXX, etc.). The equipment is not attached to any permanent structure belonging to the lessee and can at any time be easily removed from the lessee's property without damage or alteration thereto. Ownership of the equipment remains with Aco throughout the period of the lease.
6. As with the portable trailers, once the XXXXXXXXXX is completed, the equipment is removed by Aco from the lessee's property and transported to another XXXXXXXXXX. You indicate that the equipment is also generally leased for a period of 2 or 3 weeks.
7. Aco does not employ more than 5 full-time employees in its leasing business and no other corporation associated with Aco provides any administrative or other similar services to Aco.
8. We have not been provided with a copy of the lease contracts referred to above.
As the entire income of Aco is derived from the leasing of property consisting of the portable trailers and the equipment described above, you are concerned that Aco may be considered to be carrying on a "specified investment business", as defined in subsection 125(7) of the Act. However, you submit that since the definition specifically excludes businesses that lease property other than real property, and that Aco does not own any land or buildings, it should not be considered to carry on a "specified investment business". You ask for our comments in that respect.
The circumstances outlined in your letter relate to a specific fact situation. As explained in Information Circular 70-6R5, dated May 17, 2002, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. When the situation involves a specific taxpayer and a completed transaction, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to provide you with the following general comments.
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".
Based on the limited facts provided in your request, it is our understanding that the equipment and the portable trailers in the situation described above would not constitute real property under property law and accordingly, in our view, the business of leasing such property would not constitute the leasing of real property. As a result, it appears the leasing business of Aco would not constitute a "specified investment business", as defined in subsection 125(7) of the Act. However, we draw your attention to the fact that these matters always involve questions of fact, and therefore any definitive determination can only be made after reviewing all of the relevant information with respect to a particular taxpayer's operations. We also have not been provided with sufficient information to comment on whether all the other requirements of section 125 of the Act have been met to qualify for the small business deduction.
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 Revenue Agency.
We trust the above comments are of assistance to you.
Milled Azzi, CA
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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