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.
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Attention: XXXXXXXXXX
Dear Sirs:
RE: Specified Investment Business
This is in reply to your letter of August 30, 1996, wherein you asked for our comments as to whether income earned by a corporation would be active business income in a situation described as follows:
Two individual residents in Canada own six taxi licenses which they transfer to a corporation, the shares of which are owned by these same individuals. The corporation will lease the licenses to arms length parties who will use the licenses to generate their income. The corporation's only source of revenue will be from leasing the licences.
The fact situation which you set out is quite specific and it appears that it may relate to definite contemplated transactions. Assurance as to the tax consequences of contemplated transactions can only be given in response to a request for an advance income tax ruling. If you wish to obtain any binding commitment with respect to an actual case with facts similar to your example, an advance income tax ruling request should be submitted. We do, however, provide the following comments for your information.
Subsection 248(1) of the Income Tax Act (the "Act") defines an active business and business as follows:
"active business" in relation to any business carried on by a taxpayer resident in Canada, means any business carried on by the taxpayer other than a specified investment businessor a personal services business.
"business" includes ... an adventure or concern in the nature of trade ...".
Subsection 125(7) of the Act, in conjunction with subsection 248(1), provides definitions of specified investment business and personal services business and whether or not a particular corporation fits within either of these definitions is a question of fact to be determined from an examination of all the facts. However, based on the information provided, it would seem that the particular proposed corporation would not be a personal services business but, as discussed below, would fall within the purview of the definition of a specified investment business, which 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 the corporation employs in the business throughout the year more than five full-time employees.
Since the revenue earned from leasing the licences would, in our view, be income from property, the business would fit within the definition of a specified investment business and based on the information provided, the exception requirement of "unless the corporation employs in the business throughout the year more than five full-time employees", would not be met. Accordingly, in our view, the corporation would not have income from an active business and, therefore, would not qualify for the small business deduction.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert for Director
Business and Publications Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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