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.
Qualified Small Business Corporation Shares - "Primarily" Test
OBJECTION
Under the definition of a qualified small business corporation share in 110.6(1) of the Act, one of the requirements is that assets are used in an active business carried on "primarily" in Canada (subparagraph (c)(i) of the definition). While the Department has interpreted "primarily" to mean greater than 50%, there is little or no guidance given as to how this 50% should be measured (i.e., by reference to assets, sales, employees, etc.). Can the Department provide general guidance as to how "primarily" should be measured and which basis to use in different situations?
DEPARTMENT'S POSITION
In paragraph 8 of IT-147R2 and paragraph 5 of IT-486R, the Department interprets the term "primarily" to mean principally, chiefly, or greater than 50%. However, whether or not an active business is carried on primarily in Canada is a question of fact. Factors such as the type of business, sales, net profit, number of employees, gross assets and net assets are examples of factors that are taken into account in determining whether a corporation's business is being carried on primarily in Canada. The Department has no set guidelines as to which factors to use in different situations as all the circumstances must be considered in deciding each case.
Canadian Tax FoundationNovember 1991R. Albert, Section 23Question # 42
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