The Queen v. Rockmore Investments Ltd., 76 DTC 6156, [1976] CTC 291 (FCA)

The Chief Justice (judgment delivered from the Bench) (concurred in by Pratte, J and Hyde, DJ):—This is an appeal from a judgment of the Trial Division allowing an appeal from the respondent’s assessment under Part I of the Income Tax Act for the 1972 taxation year and referring that assessment back to the Minister of National Revenue, in effect, for reassessment on the basis that the respondent’s income for that year was income “from an active business carried on in Canada” within the meaning of those words as found in that part of subsection 125(1) of the aforesaid Act that reads as follows:

125. (1) There may be deducted from the tax otherwise payable under this Part for a taxation year by a corporation that was, throughout the year, a Canadian-controlled private corporation, an amount equal to 25% of the least of

(a) the amount, if any, by which

i) the aggregate of all amounts each of which is the income of the corporation for the year from an active business carried on in Canada,

exceeds

(ii) the aggregate of all amounts each of which is a loss of the corporation

for the year from an active business carried on in Canada,

The main thrust of the very able argument of counsel for the appellant, as I understood it, was that

(a) alleviation of income tax of private corporations under Part I of the Income Tax Act is to be found, in so far as income from active businesses is concerned, in section 125, and, in so far as income from businesses other than active businesses is concerned, in section 129;

(b) a study of the schemes involved in section 125 and section 129 reveals a limitation that must be read into the phrase “active business” in order to implement the parliamentary intention; and

(c) such limitation either is, or includes (I am not sure which), an exclusion from the concept of active business of any business that consists of lending money on mortgages.

Counsel made it clear that the application of those two sections has given rise to much difficulty and that many matters are being held in abeyance in the hope that guidance may be obtained from the decision in this case.

The task of counsel was not easy because inter alia the provisions in question are not so framed as to make their raison d’etre patent to the uninitiated. In spite of my best efforts to follow counsel in his attempt to show that Parliament must have intended some limitation on the scope of the words “active business” that it did not expressly state, I have to confess my complete inability to detect any such parliamentary intent.

In considering whether there is an “active business” for the purposes of Part I, the first step is to decide whether there is a “business” within the meaning of that word. Section 248 provides that that word, when used in the Income Tax Act, includes “a profession, calling, trade, manufacture or undertaking of any kind whatever” and includes “an adventure or concern in the nature of trade” but does not include “an office or employment”. Furthermore, the contrast in paragraph 3(a) of the Act between “business” and “property” as sources of income makes it clear, I think, that a line must be drawn, for the purposes of the Act, between mere investment in property (including mortgages) for the acquisition of income from that property and an activity or activities that constitute “an adventure or concern in the nature of trade” or a “trade” in the sense of those expressions in section 248 (supra). Apart from these provisions, I know of no special considerations to be taken into account from a legal point of view in deciding whether an activity or situation constitutes the carrying on of a business for the purposes of Part I of the Income Tax Act. Subject thereto, as I understand it, each problem that arises as to whether a business is or was being carried on must be solved as a question of fact having regard to the circumstances of the particular case.

In this case, I can see no ground for interfering with the finding of the Trial Division that the respondent’s activities, which are carefully analyzed by the learned trial judge, constituted the carrying on of a money-lending business.

Having reached that conclusion, the second question to be answered is whether the business that was being carried on was an “active” business within the intent of section 125. Obviously, the concept of “active” business is not used to exclude a business that is in an absolute state of suspension because subparagraph 125(1)(a)(i) is dealing with “income . . . from an active business” and it must be assumed that the word “active” was used to exclude some businesses having sufficient activity in the year to give rise to income.* [1] More than that, as it seems to me, nothing can be said in a general way, at this stage, as to what is meant by the word “active” in subparagraph 125(1)(a)(i).+ [2] Each case must be dealt with by the fact finder according to the circumstances of the case. It may be that experience in the application of the provision will make evident other conclusions of a general nature that can be deduced from the statute as to how the concept of “active” business is to be applied. I do not, myself, feel capable of deducing any such general conclusion at the present time.

In so far as this case is concerned, I agree with the learned trial judge that the evidence shows that the respondent was "actively carrying on business in the year 1972” and, in the circumstances, in my view, its income for that year was therefore “income . . . from an active business”.

In my opinion, the appeal should be dismissed with costs.