29 March 1991 Internal T.I. 901817 F - General Anti-Avoidance Rules

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 19, 1990 wherein you requested our comments on the General Anti-Avoidance Rules ("GAAR") as contained in section 245 of the Income Tax Act (the "Act") and how they might apply to the following hypothetical fact situation. You also requested our opinion on whether the Parent Co. (as defined below) is a principal business corporation for the purpose of subsection 1100(12) of the Income Tax Regulations (the "Regulations").  We apologize for the delay in responding to your query.

Hypothetical Facts

24(1)

24(1)

24(1)

Your interpretation

24(1)

24(1)

Our comments

The above hypothetical facts appear to reflect a factual situation. We cannot provide confirmation of the tax treatment of a factual situation unless it is in the context of advance income tax ruling. However, we can provide the following general comments.

GAAR as contained in section 245 of the Act will not apply to a transaction or series of transactions which are undertaken primarily for business purposes other than to obtain tax benefit. GAAR generally would not apply in a situation where the fixed assets are separated from operations for the purposes of risk management.  However, further separating the fixed assets between companies, without any significant business reasons may result in the application of GAAR.

Regarding your second request, it is a question of fact whether a taxpayer is carrying on a business.  Assuming the taxpayer carries on a business, paragraph 2 of the Interpretation Bulletin IT-290 lays out the criteria to be considered for determining principal business status.  The criteria to be considered are as follows:

(a)  the profits realized by each one of a corporation's businesses; (b)  the volume and the value of the gross sales or transactions of each business; (c)  the value of the assets of each business; (d)  the capital employed in each business; and (e)  the time, attention and efforts expended by the employees, agents or officers of the corporation in each business.

Although none of the above criteria may be sufficient in or by themselves, they should be considered in determining whether a taxpayer's rental or leasing business is its principal business. In this hypothetical situation, there is not enough information to determine whether the leasing activity is a principal business to However, as stated in paragraph 9 of the IT-371, if a corporation is in the rental or leasing business and has no other business, then the requirements under subsections 1100(12) or 1100(16) of the Regulations are met.

As stated in paragraph 5 of Interpretation Bulletin IT-73R4, a corporation's entire profits can be characterized as income from property where the corporation is formed for the sole purpose of holding a property to be rented with limited landlord/owner responsibilities.  If this is the case, the exemptions to the CCA restriction rules as contained in subsections 1100(12) and 1100(16) of the Regulations will not apply, and the corporation would be subject to CCA restriction.

These comments represent our opinion of the law as it applies generally.  As indicated in paragraph 21 of the Information Circular IC70-6R2, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch