11 December 1987 Income Tax Severed Letter 5-5085 - [Definition of a Small Business Corporation]

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.

Revenue Canada Taxation Head Office

XXX

December 11, 1987

J. Thompson (613) 957-2104

Dear Sirs:

Re: Definition of a Small Business Corporation

This is in reply to your letter of November 6, 1987 wherein you request our views concerning the interpretation of the small business corporation provisions described in subsection 248(1) of the Income Tax Act (Canada)(the "Act") in a hypothetical example.

Your letter states that a Canadian-controlled private corporation uses one of its major assets (a yacht) in the Caribbean for charters. All of the other activities and assets pertaining to the charter business are located in Canada. You seek clarification as to whether for purposes of the definition of a small business corporation in subsection 248(1) of the Act, it is necessary in these circumstances for the yacht to be physically located in Canada in order to qualify as an asset used in an active business carried on primarily in Canada. In addition, you request confirmation that the corporation in question is using substantially all of its assets (i.e. 90% or more) in an active business carried on primarily in Canada and therefore should be considered a small business corporation pursuant to subsection 248(1) of the Act.

Our Comments

As indicated in your letter, part of the definition of a small business corporation in subsection 248(1) of the Act requires that all or substantially all of the assets of the particular corporation or a corporation related to it, be used in an active business carried on primarily in Canada. In our view, where a corporation otherwise meets the definition of a small business corporation described in subsection 248(1) of the Act, it may still meet the substantially all test described therein even though some of the assets are not physically located in Canada. Thus, where a yacht is used by a Canadian-controlled private corporation in the Caribbean in connection with an active business carried on primarily in Canada, it may be considered one of those assets all of or substantially all of which were used by the particular corporation in an active business carried on primarily in Canada in meeting the definition of a small business corporation.

Whether a particular corporation carries on an active business primarily in Canada or uses all or substantially all of its assets in that business, is a question of fact which can only be determined after an examination of all the relevant facts in the particular situation on a retrospective basis. Therefore, we cannot draw any conclusions as to whether this corporation is in fact carrying on an active business primarily in Canada or is a small business corporation as defined in subsection 248(1) of the Act.

We trust these comments are of assistance.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch