18 July 2000 External T.I. 2000-0033755 - Same Business

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: Meaning of "same business" in Reg 1103(1)

Position: question of fact

Reasons: question of fact

									2000-003375
XXXXXXXXXX 								Denise Dalphy
(613) 957-9231
Attention: XXXXXXXXXX 

July 24, 2000

Dear Sirs:

Re: Same Business

We are writing in reply to your letter dated June 19, 2000 wherein you inquire about the meaning of the words "same business" in subsection 1103(1) of the Income Tax Regulations.

You have described a situation where a company that operated an active business disposed of all of the assets of the business, with the exception of the land and buildings from which they had operated the active business. The company then rented the land and buildings to an arm's length party. Later, the company acquired other real estate and equipment which it rented to an associated corporation. The company then sells the original land and buildings and wishes to transfer the assets that it rents to an associated company in order to avoid recapture on the building.

Although you have asked for a technical interpretation in a hypothetical situation, the scenario described seems to involve actual transactions. As explained in Information Circular 70-6R3, it is not the practice of the Canada Customs and Revenue Agency (CCRA) to comment on proposed transactions other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve actual taxpayers and completed transactions you may wish to submit all relevant facts and documentation to the relevant Tax Services Office for their views. We are, however, prepared to offer the following general comments concerning the above scenario.

Whether or not assets were "acquired for the purpose of gaining or producing income from the same business" is a question of fact, and as such, a determination will depend on the particular circumstances in each case. Paragraphs 2 and 3 of Interpretation Bulletin IT-206R, Separate businesses, provides a summary of the extensive caselaw on the subject of "same business". An analysis of this caselaw may assist you in forming an opinion on the above situation. However, in addition to determining whether one or more businesses is carried on by the company, you may also wish to consider the following issues:

1. Is the company carrying on business, or earning income from property?

2. What was the purpose of the acquisition of the properties in respect of which you wish to make a subsection 1103(1) election?

3. If subsection 1101(ac) of the Regulations applies, when the subsection 1103(1) election is made, each rental property acquired after 1971 with a capital cost of $50,000 or more transferred to Class 1 must be put into a separate Class 1.

4. Will the "general anti-avoidance rule" in section 245 of the Income Tax Act apply?

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

Paul Lynch
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings Directorate

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