9 September 1992 External T.I. 9225825 F - Advance Ruling 19(1)

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.

Attention:  19(1)

September 9, 1992

Dear Sirs:

Re:  Advance Income Tax Ruling Request

This is in reply to your letter of August 11, 1992 requesting an advance ruling on behalf of 19(1) We also acknowledge your facsimile message of September 1, 1992 withdrawing the foresaid ruling request on behalf of your clients. In view of the foregoing we are closing our file on this matter.  Your deposit of $400.00 will be returned to you separately.

As discussed with you over the telephone on September 1, 1992 the issue of whether certain assets are used in an active business is a question of fact and questions of fact are circumstances under which requests for rulings may be refused.  See paragraph 14 of Information Circular 70-6R. The following are our comments relating to this matter.

Our Comments

As indicated above whether assets are used in an active business is a question of fact.  In order to make such a determination, it is necessary to have knowledge of all the facts surrounding a particularsituation, however, it is our view that where cash is temporarily surplus to the needs of a business and is invested in short-term income-producing investments, those investments may be considered to be used in the business.  On the other hand, where substantial amounts of cash and deposits - in excess of that required for use in the business, are retained in the corporation on a permanent basis, they would not be considered to be funds used in the business.  Such funds would be considered to be permanently set aside for investment or uses other than in an active business.  This position is consistent with comments in paragraph 8 of IT-73R4, paragraph 29 of IT-268R3 and paragraph 5 of IT-468R.  Generally cyclical cash and short-term investments upon which interest income earned is treated as active business income, may, depending on all of the circumstances, be considered to be used in an active business for purposes of the definition of "small business corporation" in the Income Tax Act. 

With respect to housing loans made to employees of the firm, where a corporation has a policy of making housing loans to its employees under which all employees may participate, even though a limitation such as years of service may apply, such loans are considered as assets used in an active business.  However, where such a policy does not exist or loans are made only to shareholders (even if ostensibly in their capacity as employees), the Department would likely consider that such loans were not assets used in an active business.  As noted initially, determinations of this nature require a knowledge of all the facts of the particular situation.

Please note that the foregoing is an expression of our opinion only and should not be construed as an advance income tax ruling.  As such it is not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch