Bonner
T
.
C.J.:
Dan
Lee
appeals
from
assessments
under
the
Income
Tax
Act
(“Act”)
for
the
1992
and
1994
taxation
years.
Linda
Lee
appeals
from
an
assessment
under
the
Act
for
the
1992
taxation
year.
The
appeals
were
heard
together
on
common
evidence.
During
1992
the
Appellants
disposed
of
the
shares
of
Cassidy
Mobile
Home
Park
Ltd
(“Cassidy”).
The
issue
in
both
cases
is
whether
Cassidy’s
business
was
a
specified
investment
business
as
defined
in
the
Act.
The
Appellant
Linda
Lee
included
in
reported
income
a
taxable
capital
gain
of
$80,303
from
the
disposition
of
her
shares.
Dan
Lee
included
a
taxable
capital
gain
of
$723,963
from
the
disposition
of
his
shares.
Each
Appellant
sought
a
deduction
under
subsection
110.6(2.1)
of
the
Act.
The
deduction
in
question
is
available
only
where
there
has
been
a
disposition
of
a
share
of
a
corporation
that,
at
the
time
of
disposition,
was
a
“qualified
small
business
corporation
share
of
the
individual”
who
disposed
of
it.
The
term
“qualified
small
business
corporation
share”
is
defined
in
subsection
110.6(1).
Paragraph
(c)
of
that
provision
requires
that
a
qualified
small
business
corporation
share
be:
à
Share
of
a
capital
stock
of
a
Canadian-controlled
private
corporation
more
than
50%
of
the
fair
market
value
of
the
assets
of
which
was
attributable
to
(i)
assets
used
principally
in
an
active
business
carried
on
...
by
the
corporation...
The
term
“active
business”
is
defined
in
subsection
248(1)
of
the
Act
to
be
any
business
carried
on
by
the
taxpayer
...
other
than
a
specified
investment
business...
(Emphasis
added)
By
virtue
of
subsection
248(1)
the
term
“specified
investment
business”
has
the
meaning
assigned
by
subsection
125(7)
of
the
Act.
The
definition
in
that
provision
is
as
follows:
“specified
investment
business”
carried
on
by
a
corporation
in
a
taxation
year
means
a
business
(other
than
a
business
carried
on
by
a
credit
union
or
a
business
of
leasing
property
other
than
real
property)
{
the
principal
purpose
of
which
is
to
derive
income
from
property
(including
interest,
dividends,
rents
or
royalties).
unless
(a)
the
corporation
employs
in
the
business
throughout
the
year
more
than
five
full-time
employees,
or
(b)
in
the
course
of
carrying
on
an
active
business,
any
other
corporation
associated
with
it
provides
managerial,
administrative,
finan-
cial,
maintenance
or
other
similar
services
to
the
corporation
in
the
year
and
the
corporation
could
reasonably
be
expected
to
require
more
than
five
full-time
employees
if
those
services
had
not
been
provided;
(Emphasis
added)
The
assessment
in
issue
was
made
on
the
basis
that
Cassidy’s
business
was
a
specified
investment
business.
It
was
the
Appellants’
position
that
the
level
of
their
activity
devoted
to
the
operation
of
the
Cassidy
business
was
so
great
that
the
principal
purpose
of
the
business
could
not
be
said
to
be
to
derive
income
from
property
as
required
by
the
subsection
125(7)
definition.
Neither
the
exception
in
paragraph
(a)
nor
that
in
paragraph
(b)
of
the
subsection
125(7)
definition
applies
in
the
case
of
Cassidy.
It
did
not
employ
more
than
five
full-time
employees.
There
was
no
suggestion
that
any
other
corporation
associated
with
Cassidy
provided
services
of
the
sort
described
in
paragraph
(/?).
Cassidy’s
business
was
the
operation
of
a
mobile
home
park
on
land
which
it
owned.
The
park
comprised
68
pads
which
Cassidy
rented
to
tenants
as
sites
for
their
mobile
homes.
There
can
be
no
doubt
on
the
evidence
of
the
Appellants
and
of
the
witnesses,
Rosemary
Nicholls
and
Arthur
Gallant,
that
the
tenants
were
attracted
and
retained
by
the
high
level
of
service
and
superior
maintenance
standards
which
were
offered
by
the
Cassidy
Park.
Nevertheless,
so
far
as
Cassidy’s
income
earning
activity
is
concerned,
the
clear
purpose
was
to
derive
rental
income
from
the
tenants
who
occupied
the
pads
under
leases
of
the
sort
entered
in
evidence.
What
was
paid
by
the
tenants
and
received
by
Cassidy
was
described
in
the
leases,
and
fairly
so,
as
“rent”.
Cassidy
had
no
other
significant
source
of
revenue.
In
Lerric
Investments
Corp.
v.
R.
my
colleague
Bowman,
J.
had
the
following
to
say
regarding
the
subsection
125(7)
definition
of
specified
investment
business:
[23]
What,
then,
is
the
statute
aiming
at?
The
concept
of
specified
investment
business
seems
to
have
been
a
response
to
certain
decisions
of
the
courts
which
treated
virtually
any
commercial
activity
of
a
corporation,
however
passive,
even
where
it
was
carried
under
contract
by
independent
contractors
who
were
not
employees,
as
an
active
business
(see,
for
example,
The
Queen
v.
Cadboro
Bay
Holdings
Ltd.,
'll
D.T.C.
5115
(F.C.T.D.);
The
Queen
v.
Rockmore
Invest-
ments
Ltd.,
76
DTC
6157;
E.S.G.
Holdings
Limited
v.
The
Queen,
76
D.T.C.
6158;
The
Queen
v.
M.R.T.
Investments
Ltd.,
76
D.T.C.
6158).
[24]
The
result
was
the
introduction
of
the
concept
of
specified
investment
business
the
purpose
of
which
to
ensure
that
“active”
meant
truly
active
and
that
the
word
not
be,
in
effect,
judicially
written
out
of
the
Act.
Therefore
the
object
of
the
new
legislation
was
to
ensure
that
the
business
of
a
corporation
that
invested
in
rental
properties
would
not
be
considered
“active”
unless
there
was
sufficient
activity
in
the
corporation’s
business
to
justify
the
employment
of
over
five
full-
time
employees.
Here
the
activities
of
the
two
Appellants
in
operating
the
park
on
behalf
of
Cassidy
were
extensive
but
they
do
not
meet
the
statutory
five
full-time
employee
standard
of
subsection
125(7).
The
principal
purpose
of
Cassidy’s
business,
indeed
almost
the
exclusive
purpose
thereof,
was
to
derive
income
from
property
in
the
form
of
rent.
Cassidy’s
business
was
therefore
a
specified
investment
business.
The
appeals
will
be
dismissed
with
costs.
Appeal
dismissed.
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