5 March 1990 Ministerial Correspondence 59114 F - Qualifying Small Business Corporation Assets

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.

March 5, 1990

Dear Sirs:

Re:  Qualifying Small Business Corporation Assets

This is in reply to your letter of November 15, 1989 concerning whether certain assets can be regarded as having been used in an active business for the purposes of subparagraph (c)(i) of the definition of qualifying small business corporation share (qsbc share) in subsection 110.6(1) of the Income Tax Act (the "Act") and paragraph (a) of the definition of small business corporation (sbc) it subsection 248(1) of the Act.

You have provided us with the following hypothetical situation:

1.     A company uses 40% of its assets in an active business in Canada.

2.     The other 60% of the assets of the company consist of a portfolio of five apartment buildings.

3.     As set out below, there are greater than five employees employed directly in the operation and maintenance of the five apartment buildings:

a)     one full-time manager per building (5),

b)        one property manager,

c)        one maintenance man/painter, and

d)        one accountant.

4.     Over the last two years, the company's situation has been consistent with the above scenario and no other substantial assets exist.

Whether or not a specific corporation is a sbc at a particular time is a question of fact the determination of which cannot be made without a thorough examination of all the relevant facts and a review of its day to day activities.  Such examinations are usually carried out by officers from a District Taxation Office. We do, however, provide the following comments.

Our Comments

Pursuant to our telephone conversation on February 26, 1990 (Eisner  19(1)  it is our understanding that the above hypothetical situation existed throughout the particular years involved, that the rental operation described in 2 and 3 above constitutes a business pursuant to comments in paragraph 5 of IT-73R4, that the business is carried-on in Canada, and that the employees in 3(b), (c) and (d) above are employed by the company on a full-time basis.

With respect to your situation, we agree that the operation described in 2 and 3 above is not a "specified  investment business" pursuant to the definition of this term in subsection 248(1) and that, accordingly, it would be an "active business" within the definition of this term in subsection 248(1).  It would follow that the assets in 1 and 2 above would be regarded as having "been used in an active business" for the purposes of subparagraph (c)(i) of the qsbc share definition and paragraph (a) of the sbc definition.

We stress that the above expressions of opinion are not rulings and are not binding on Revenue Canada, Taxation as explained in paragraph 24 of Information Circular 70-6R.  In this respect, if you are contemplating a proposed transaction you may wish to apply for an advance income tax ruling in accordance with the instructions in the above noted Information Circular.

We trust you will find the foregoing satisfactory.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch