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.
5-950791
XXXXXXXXXX J. Teixeira
(613) 957-8953
July 14, 1995
Dear Sir:
Re: License Agreement Revenues
This is in reply to your letter of March 14, 1995 requesting our opinion on whether revenues from a licensing agreement would be considered to be active business income.
The situation described in your letter contains limited information and appears to relate to an actual fact situation related either to a past transaction or to an actual proposed transaction. If the situation described relates to an actual transaction which has already been carried out, the review of such transactions falls within the responsibility of the District Office in which the taxpayer files his income tax return for the year. If the situation relates to actual proposed transactions, confirmation of the tax consequences of such proposed transactions will only be provided in response to a request for an advance tax ruling. The procedures for requesting an advance ruling are set out in Information Circular 70-6R2. Having said this, we are able to offer the following general comments on your situation.
As a general rule, income from a licensing agreement would not be income from an active business because it would be income from a source that is property or income from a specified investment business. In a situation where it could be established that the licensing income is related to an active business carried on by the recipient corporation or the recipient corporation is in the business of dealing in or originating the property from which the licensing income is received, such income could be considered to be income from an active business.
In addition, for the corporation to be eligible in a taxation year for a deduction pursuant to subsection 125(1) of the Act, the corporation must be a corporation that was, throughout the taxation year, a Canadian-controlled private corporation and the income of the corporation must be income from an active business carried on in Canada. Payments coming from a foreign country from licensing agreements could be income from carrying on business in that country.
The determination of whether a particular activity constitutes an active business and in which country the business is being carried on are both questions of fact which cannot be determined until all of the relevant facts are known and reviewed.
The foregoing comments are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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