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.
June 24, 1992
ISSUE AND REASON FOR POSITION TAKEN ISSUE
What is the Department's view on the definition of active business income with respect to excess cash? The scenario presented was one in which a cyclical business would have the cash necessary for operations during the peak period invested in term deposits throughout the year and rather than cash in the term deposits to fund the peak period the term deposits would be used as security to obtain operating loans.
POSITION
This letter had been assigned to T. Harris's group before it came to our group and Ted had noted that the scenario was similar to the ENSITE case. That case involved deposits held in a foreign bank in order to finance operations in a foreign country and whether interest earned on those funds would be considered as `foreign business income' or whether the deposits would be considered as `property used or held by the corporation in the year in the course of carrying on a business'.
The judge at 6525 said: "the test is whether the property was used to fulfil a requirement which had to be met in order to do business. Such property is then truly employed and risked in the business. Here the property was used to fulfil a mandatory condition precedent to trade; it is not collateral, but is employed and risked in the business...."
I discussed this with G. Thornley who said that we haven't used this position for the definition of assets used in an active business with respect to the 248(1) definition of small business corporation and that we have used the standard position re: excess cash for most of the queries dealing with excess cash. Based on the above quote where it says that the deposit was not collateral but it was risked in the business - even if this position was used, the term deposits only appear to be used as collateral for operating loans and would not satisfy the test.
Our standard position is that short term cash may be considered to be used in the business but excess cash held in deposits on a permanent basis are not.
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