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.
5-8470
19(1) W.P. Guglich
(613) 957-2102
SEP 11 1989
Dear Sirs:
This is in reply to your letter of August 2, 1989, wherein you requested our views as to whether in the two situations you described the corporation would be considered for purposes of paragraph 125(7)(e) of the Income Tax Act (the "Act") to employ in the business of leasing real property more than five full time employees throughout the year.
You described the following hypothetical situations:
Situation 1
X Co. is in the business of leasing real property and has substantial real estate holdings. The company employs a maintenance/grounds crew of seven individuals. Each of the individuals are registered employees of X Co. and their entire salary is paid by X Co. The employees report to work five days per week. Approximately 40% of the employees' time is spent providing services to X Co. The remainder of their time is spent providing the same services to associated companies in the same business with a management fee being charged for their services.
Situation 2
Y Co., unrelated to X Co., is also in the business of leasing real property and has the following employees:
Accounting staff: 3
Maintenance: 2
Recreation: 1
All employees are full-time. Approximately 60% of their time is spent providing services to Y. Co. while the remainder of their time is contracted out to associated companies.
Our Comments
To meet the conditions in subparagraph 125(7)(e)(i) of the Act a corporation must employ in the business (from which the property income is derived) throughout the year more than five full-time employees.
In your hypothetical situations, although Y Co. and X Co. each employ more than five full-time employees in total, they do not employ more than five full-time employees in their respective leasing businesses. Consequently, X Co. and Y Co. will not be considered for purposes of subparagraph 125(7)(e)(i) of the Act, to employ more than five full-time employees in their leasing business and would not be considered to be carrying on an active business.
We trust these comments are of assistance.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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