CRA indicates that the equivalence of cash held to future years’ expenses is insufficient to establish that such cash was used in the business

In the course of its active services business, Opco contracted to provide services to an unrelated third party in consideration for $100,000 received in cash at the time of the agreement, of which it expected to use $80,000 to cover ongoing expenses during the three-year term of the contract (for a net profit of $20,000) – but with no contractual restriction as to its use of the $80,000 cash.

In doubting that it followed from this that the $80,000 portion of the cash deposited was to be considered as an asset used principally in an active business carried on by Opco for purposes of (c)(i) of the QSBCS definition, CRA referred to the Ensite decision, and then stated:

In determining whether cash (cash on hand, short-term investments, etc.) can be considered to be an asset used principally in an ABCO [active business carried on] the test is not to compare the total amount of such cash with the potential expenses that the corporation may incur in the coming years, but rather to determine whether its withdrawal could have a destabilizing effect on the business’s operations or whether its holding is necessary to satisfy a condition that must be met before engaging in commercial activities.

… [A] permanent accumulation of cash in excess of a company's reasonable needs for working capital will generally not be considered to be an asset used principally in an ABCO.

Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.14 under s. 110.6(1) – QSBCS – (c)(i).