25 April 1995 External T.I. 9510145 - QUALIFIED 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 employees of a related corporation must be employed full time in respect of the business of another corporation for purposes of the 50% test in paragraph (c) of the definition of qualifying active business in 5100(1)?

Position TAKEN:

Yes

Reasons FOR POSITION TAKEN:

Wording and purpose of the definition of qualifying active business. See Q.24 R.Table APFF 1992 concerning the definition of "specified investment business".

		5-951014
XXXXXXXXXX	Robert Gagnon

Attention: XXXXXXXXXX

April 25, 1995

Dear Sirs:

Re: Qualified Active Business

This is in reply to your letter of April 7, 1995 wherein you requested a technical interpretation concerning the meaning of qualifying active business under paragraph 5100(1) of the Income Tax Regulations ("Regulations").

The situation outlined in your letter appears to involve an actual proposed transaction with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. Moreover, the Department does not give rulings where a matter on which a determination is requested is primarily one of fact and the circumstances are such that all the pertinent facts cannot be established at the time of the request for an advance ruling. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.

In you letter, you mention that we should assume for purposes of your request that the two corporations carry on the same business. In our view, it is inappropriate to make such an assumption because the facts described in you letter lead rather to the opposite view.

For purposes of the definition of "qualifying active business" in paragraph 5100(1) of the Regulations, a business carried on primarily in Canada by a corporation at any time, includes a business carried on by the corporation if, at that time, at least 50 per cent of the full time employees of the corporation and all corporations related thereto employed in respect of the business are employed in Canada. It is our view that where employees of a corporation ("Corp A") which is related to another corporation ("Corp B"), render services in respect of the business of Corp B, the employees of Corp A must be employed full time in respect of the business of Corp B to enter into the calculation for purposes of the 50 per cent test in paragraph (c) of the definition of qualifying active business.

The foregoing opinions 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.

We trust our comments will be of assistance to you.

Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch