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.
XXX
Re: Subparagraph 95(2)(a)(i) of the
Income Tax Act (the Act)
This is in reply to your letter of February 1, 1982 requesting our interpretation of the words "pertains to or is incident to" in subparagraph 95(2)(a)(i) of the Act.
Pursuant to paragraph 23 of Information Circular 70-6R, it is not the practice of the Department to give written opinions concerning proposed transactions Advance Income Tax Rulings are available in these circumstances where all the pertinent facts can be established at the time of the request for the rulings. However, we offer the following general counts:
In determining whether or not income is "from property" or from "a business other than an active business" and whether such income "pertains to or is incident to an active business" each situation must be considered in the light of its own particular facts.
For example, if money is borrowed by a contractor to build dwelling houses, the interest on mortgages taken back on the sale of such houses could normally be considered to pertain to or to be incident to the construction business.
On the other hand, if an investment producing FAPI (foreign accrual property income) is liquidated and the proceeds are used by the contractor to finance the construction of a house, the interest on the mortgage taken back on the sale of such a house may not be considered to pertain to or to be incident to the construction business. In other words, such a method could be used to convert a long term investment producing FAPI into another long term investment producing exempt surplus.
However, if the proceeds of disposition of a large investment are used by the contractor to finance the construction of several houses, the interest on the mortgages taken back on the sale of such houses may be income from an active money lending business carried on by the contractor in addition to his construction business.
We hope this will be helpful to you.
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© Her Majesty the Queen in Right of Canada, 1982
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© Sa Majesté la Reine du Chef du Canada, 1982
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