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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
CTF Nov 1992
C.Dubé
0-922843
October 16, 1992
Question 12
Specified Investment Business
Paragraph 125(7)(e) of the Act refers to a specified investment business as a business "the principal purpose of which is to derive income from property". It would appear that a corporation which acts as a trader in securities or other investments would be entitled to the small business deduction since the principal purpose test is not met and since the interest or dividends received would only be ancillary to the main purpose of the business of the corporation. Similarly, a company which acts as a trader in securities would not be entitled to refundable tax under Part 1 of the Act. Does Revenue Canada agree with this interpretation?
Answer
As stated in paragraphs 5 and 15 of the Interpretation Bulletin IT-479R , the Department considers that all gains or losses on security transactions by a trader in securities are part of the normal operation of such a business and thus are on income account. Therefore, a corporation which is a trader in securities would be entitled to the small business deduction pursuant to subsection 125(1) of the Act.
Any interest or dividend income of the corporation for a year that would pertain to or be incident to the active business carried on by it would be considered income from an active business under paragraph 125(7)(c) of the Act. In this situation no amount would be added to the refundable dividend tax on hand account of the corporation by virtue of paragraph 129(3)(a) of the Act.
Applicable sections of the Act: 125(1), 125(7)(c) and 129(3)(a)
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