Principal Issues: How paragraph 402(4)(j) and subsection 402(5) of the Regulations are to be applied in computing the taxable income of a corporation in a province, where the corporation has earned rental revenue from leasing of real property that is not connected with the principal business operations of the corporation.
Position: If the land is not used in connection with the principal business operations of the corporation, the rentals therefrom would be excluded in computing the gross revenue reasonably attributable to the PE in the province the land is situate. Such rentals would also not be viewed as reasonably attributable to PE in another province.
Reasons: Pursuant to subsection 402(3) of the Regulations, where a corporation has a PE in a province and a PE outside of the province, its taxable income earned in the province is deemed to be an amount computed with reference to the gross revenue for the year that is reasonably attributable to the PE in the province. Pursuant to paragraph 402(4)(j), the "gross revenue" that is reasonably attributable to a PE in a province includes gross revenue which arises from leasing land owned by the taxpayer that is situated in that province, and included in computing its income under Part I of the Act. Pursuant to subsection 402(5), "gross revenue" for purposes of subsection 402(3) does not include ..... rentals ..... from property that is not used in connection with the principal business operations of the corporation".