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 a business of a foreign affiliate consisting of the development of resource properties for sale at a profit is an investment business as defined in subsection 95(1).
Position:
Yes. If the principal purpose of the business is to sell the properties for a profit rather than to exploit the related resource, the business would be an investment business.
Reasons:
Law. Exclusion is inapplicable because the business is not a business described in paragraph (a) of the "investment business" definition.
972253
XXXXXXXXXX Olli Laurikainen
(613) 957-2116
Attention: XXXXXXXXXX
November 13, 1997
Dear Sirs:
Re: Foreign Affiliates - Investment Business Definition
This is in reply to your letter dated August 14, 1997. You describe a hypothetical situation where a foreign affiliate develops resource property and derives profits from the disposition of such resource property once developed. You request our view whether the income of a foreign affiliate from such activity would constitute income from an "investment business" as defined in subsection 95(1) of the Income Tax Act (the "Act").
The definition of "investment business" includes a "...business carried on by the affiliate in a taxation year...the principal purpose of which is to derive...profits from the disposition of investment property...". Paragraph (h) of the definition of "investment property" in subsection 95(1) of the Act includes in that definition "Canadian and foreign resource properties". If in the above case, the principal purpose of the business of the foreign affiliate was to develop resource property for sale at a profit, it is our view that the business would be an "investment business". If, on the other hand, the principal purpose of the business was to derive income from the sale of production (e.g. oil or ore) from resource property and in the course of such business, certain resource properties were sold for profit, it is our view that the business would generally fall outside the "investment business" definition.
Where it is established that the principal purpose of the business is to derive profit from the disposition of resource property, the business cannot satisfy both of the conditions for exclusion from the definition of "investment business" in subsection 95(1) of the Act set out in paragraphs (a) and (b) thereof regardless of the number of employees that are employed in the active conduct of the business. This is so because the business is not a business described in paragraph (a) of the definition.
The foregoing comments are given in accordance with the practice referred to in paragraph 22 of information Circular 70-6R3 and are not binding on Revenue Canada.
We trust this is the information you require.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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