8 June 1995 External T.I. 9501375 - INTERPRETATION OF "ACTIVE BUSINESS"

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.

Principal Issues:

Whether the rental of a medical building and the provision of other services constitute an "active business" as defined in subsection 125(7) of the Act.

Position TAKEN:

Question of facts.

Reasons FOR POSITION TAKEN:

Routine

						5-950137
XXXXXXXXXX								Adèle St-Amour

Attention: XXXXXXXXXX

June 8, 1995

Dear Sirs:

Subject: Interpretation of "active business" as defined in subsection 125(7) of the Income Tax Act (the "Act")

This is in response to your letter received on January 18, 1995, wherein you requested our comments as to whether the rental of a medical building and the provision of other related services constitute, for the corporation, income from an active business as defined in subsection 125(7) of the Act. We apologize for the delay in responding to your letter.

It is our policy that questions that relate to specific completed transactions should be directed to your tax service office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

The question of whether a corporation engaged in providing rental of office space and other related services to its tenants, is carrying on an active business is a question of fact which can only be determined after an examination of all the relevant facts in the particular situation on a retrospective basis.

The Department's position regarding income from an active business and the related issues concerning specified investment business and personal services business is provided in Interpretation Bulletin IT-73R4. The expression "active business" is defined in paragraph 125(7) and in subsection 248(1) of the Act, and includes any business carried on other than a specified investment business or a personal services business.

Pursuant to the definition of the expression "specified investment business" in subsection 125(7) of the Act, where income is earned by a corporation through the carrying on of a business, "the principal purpose of which is to derive income from property", for instance, rental income, that business will be specified investment business unless one of the subparagraphs 125(7)(a) or (b) conditions is satisfied. The expression "principal purpose" is not defined in the Act. It must be given its usual meaning on the basis of all the relevant facts of a particular situation. The Department has stated in paragraph 11 of IT-73R4, that the expression "principal purpose" is considered to be the main or chief objective for which the business is carried on.

As explained in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the above comments do not constitute an advance income tax ruling and are not binding on the Department. We trust the above comments will be of assistance to you. If you have any questions do not hesitate to contact us.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch