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.
. 920014
L. Holloway
24(1) (613) 957-2104
Attention: 19(1)
February 17, 1992
Dear Sirs:
Re: Technical Interpretation S. 248(1) - Small Business Corporation
This is in reply to your request for a technical interpretation concerning the definition of a Small Business Corporation as defined in S.248(1) of the Income Tax Act in the following fact situation:
Facts
24(1)
24(1)
In particular you were inquiring whether we agreed with your interpretation that in this case, as the property is being used principally in an active business, then 100% of the fair market value of the real property (being $24(1)) is used in evaluating the "all or substantially all test" found in the definition of qualified small business corporation share.
Although you have asked for a technical interpretation, the situation presented appears to be an actual fact situation. Should this situation involve a proposed transaction, you may wish to submit all relevant facts and proposed transactions for a binding advance income tax ruling. However, should this situation involve actual taxpayers and completed transactions you may wish to submit all relevant facts and documentation (including company names and identification numbers) to the appropriate District Office for their comments.
We are however prepared to provide some general comments on the definition of a qualified small business corporation share.
Our Comments
The explanatory notes to income tax legislation released in May of 1991 state that a number of amendments have been made to the definition of "small business corporation" found in subsection 248(1) of the Act. In particular these notes explain that:
"Paragraph (a) of this definition requires that all or substantially all of the corporation's assets (other than shares or debt) be used in an active business carried on primarily in Canada. This amendment, which applies to the 1988 and subsequent taxation years, provides that in determining whether an asset is used in an active business carried on primarily in Canada, it is the principal use of the asset that is relevant."
These amendments became law on December 17, 1991, applicable to the 1988 and subsequent taxation years.
If more than 50% of an asset is used in an active business then that asset will be considered to be "used principally in an active business". Therefore, in order to meet the requirements of the amended definition of a small business corporation, greater than 90% of the fair market value of all of the assets of a corporation must be used principally in an active business. If a corporation has only one asset that is used principally in an active business, then 100% of the fair market value of the corporations' assets can be said to be used principally in an active business.
The foregoing comments represent our general views with respect to the subject matter of your letter. The facts of a particular situation may lead to a different conclusion. In accordance with paragraph 21 of Information Circular 70-6R2 the comments expressed herein do not constitute an advance income tax ruling and consequently are not binding on the Department.
Yours truly,
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch
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