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.
5-950991
XXXXXXXXXX D. Palamar
(613) 957-8953
Attention: XXXXXXXXXX
July 19, 1995
Dear Sir,
This is in response to your letter of March 27, 1995 requesting our opinion regarding whether a corporation would be considered to be a small business corporation in the following circumstances.
FACTS
A corporation ("Corporation A") is a Canadian-controlled private corporation the only asset of which is a commercial building. More than 50% of the space in the building is rented to two corporations related to Corporation A. The two related corporations use the rented space in their respective active businesses which are carried on in Canada. The remainder of the building is rented to arm's-length tenants.
OUR VIEW
A small business corporation is defined in subsection 248(1) of the Income Tax Act ("the Act") as, inter alia, a corporation all or substantially all of the assets of which are used principally in an active business carried on primarily in Canada by the corporation or a corporation related to it.
In the example you have given us, you have assumed that all of the requirements of the definition have been met with the exception of the "principally in an active business" requirement. It is our view that this requirement would also be met and that Corporation A would be considered to be a small business corporation.
More specifically, it is our view that in determining if an asset is used principally in an active business, for the purpose of the small business corporation definition, the percentage of active business use by a corporation and any related corporations can be aggregated. Accordingly, where, as in your example, the related corporations in aggregate use more than 50% of the building in an active business, the entire building will be considered to be used principally in an active business.
We trust the foregoing comments will be of assistance. Our comments are given in accordance with the guidelines set out in our Information Circular 70-6R2 and, in particular, 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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