5 November 1998 External T.I. E9825095 - ACTIVE BUSINESS INC. - RENTING STORAGE SPACE.

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 income from a business in which the taxpayer owns, rents and manages i) approximately 10 fenced yard compounds outside for cold storage; ii) approximately 20 cold storage rooms within a building, and 3) approximately 4 heated garage or warehouse areas, would be considered “income of the corporation from an active business carried on in Canada” within the meaning of subsection 125(7).

Position: Question of fact; however, likely not.

Reasons: A business the principal purpose of which is to derive income from property (including income from rentals of real property), would be considered a “specified investment business” as defined in subsection 125(7) unless, inter alia, the corporation employs in the business throughout the year more than five full-time employees. Income from a source that is property, which includes income from a specified investment (subsection 129(4)), is not to be included in the computation of “income of the corporation for the year from an active business” by virtue of its definition in 125(7).

XXXXXXXXXX 	J. Gibbons
		5-982509
Attention:  XXXXXXXXXX 

November 5, 1998

Dear XXXXXXXXXX:

We are replying to your facsimile of September 28, 1998, in which you inquire whether a particular business would be considered active or inactive. You describe a business in which the taxpayer owns, rents and manages: i) approximately 10 fenced yard compounds outside for cold storage; ii) approximately 20 cold storage rooms within a building, and 3) approximately 4 heated garage or warehouse areas. Presumably, you wish to know whether income from the business would be “income of the corporation for the year from an active business,” as defined in subsection 125(7) of the Income Tax Act.

Although you have asked for a technical interpretation, the situation presented appears to be an actual fact situation. Accordingly, you may wish to submit all relevant facts and documentation (including company name and identification numbers) to the appropriate Tax Services Office for their comments. We are, however, prepared to provide some general comments.

The meaning of active business income carried on by a corporation is discussed in detail in Interpretation Bulletin IT-73R5, “The Small Business Deduction,” which we have enclosed for your benefit. Paragraph 4 of IT-73R5 explains that income from an active business does not include income from a source in Canada that is property. Income or loss from a source in Canada that is property includes the income or loss from a “specified investment business” carried on by a corporation in Canada. Paragraph 11 of IT-73R5 explains that a “specified investment business” carried on by a corporation in a taxation year is defined in subsection 125(7) to be a business the principal purpose of which is to derive income from property (including income from rentals of real property) unless, inter alia, the corporation employs in the business throughout the year more than five full-time employees. Thus, the income of a corporation involved in renting storage space would likely be considered income from a specified business income and excluded from the calculation of “income of the corporation from an active business,” unless the corporation employed in the business throughout the year more than five full-time employees.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate