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: A corporation’s profit is attributable to an adventure in the nature of trade. Does the profit qualify for the small business deduction, assuming it otherwise qualifies..
Reasons: See paragraph 3 of IT-73R5
November 4, 1998
Re: Active Business Deduction
This is in reply to your letter of September 30, 1998, concerning the above-noted subject.
You have outlined a situation where M owns all the outstanding shares of G Ltd., which is a Canadian-controlled private corporation (“CCPC”)as defined in subsection 125(7) of the Income Tax Act (the “Act”). M earns commissions as a real estate agent. In 1996, G Ltd. purchased a parcel of land (the Land) in the outskirts of the city in which M is employed as a realtor. G Ltd. was incorporated in connection with the acquisition of the Land although it is expected that G Ltd. will purchase many other real estate properties. G Ltd. used funds borrowed from M to purchase the Land. G Ltd. now wishes to sell the Land and will realize a profit.
If the sale of the Land is regarded as being an adventure in the nature of trade, you have asked whether the profit would be treated as active business income that was eligible for the small business deduction.
The income tax consequences inherent in a particular transaction such as that set out above can only be determined following a review of all the relevant facts and documentation. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.
As stated in paragraph 3 of Interpretation Bulletin IT-73R5 “The Small Business Deduction”, “the term “active business carried on by a corporation” is defined in subsection 125(7) as any business carried on by a corporation other than a “specified investment business” ... and a “personal services business” ... and includes an adventure or concern in the nature of trade (see the current version of IT-459, Adventure or Concern in the Nature of Trade)”. It is, accordingly, our view that the net profit of a CCPC from an adventure or concern in the nature of trade is generally eligible for the small business deduction under subsection 125(1) of the Act assuming the profit otherwise qualifies for such treatment.
We trust that our comments will be of assistance to you.
Business and Publications Division
Income Tax Rulings and
Policy and Legislation Branch
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