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.
Dear Sirs:
This is in reply to your letter of July 30, 1981 in which you asked for clarification of the phrase "to the extent that is pertains to or is incident to an active business carried on ..." as it appears in subparagraph 95(2)(a)(i) of the Income Tax Act.
A foreign affiliate of a Canadian corporation is a member of various limited partnerships that have purchased several office buildings and shopping centres. The foreign affiliate is actively engaged in the day-to-day management and operation of these investments and consequently income earned by the company qualifies as active business income. The foreign affiliate subsequently disposes of its interest in the limited partnerships and the assets of the company now comprise of mortgages and notes receivable resulting from the sale. The question you ask is whether the interest from such mortgages would qualify as active business income under subparagraph 95(2)(a)(i), since the mortgages arose from the sale of property which produced active business income.
It is our view when the foreign affiliate disposed of all of its interests in the limited partnerships if effectively ceased to carry on an active management business. Under the circumstances, the interest earned on mortgages and notes receivable resulting from the sale cannot reasonably be considered to pertain to or by incident to the day-to-day management business previously carried on. Accordingly, we are inclined to view the interest as not being interest from an active business under subparagraph 95(2)(a)(i).
You may wish to refer to comments of Interpretation Bulletin IT-73R3, paragraph 6, as they relate to the determination of income from an active business.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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