R St-Onge (orally: March 3, 1975):
1 This appeal deals with the 1972 taxation year and came before me for hearing on February 28, 1975 in the City of Vancouver, British Columbia.
2 The appellant company has two highrise apartment buildings, one of 26 storeys and the other of 11. The total number of suites is 227 with parking spaces for 170 cars. Eight full-time employees look after the management and maintenance of the buildings and, more specifically, they perform the following duties:(1) the cleaning of halls, stair wells, entrance areas, parking spaces, pool areas, sauna baths and exercise rooms;
(2) they look after the garbage and snow removal;
(3) every month they collect the rents and, when necessary, they negotiate the leases;
(4) they look after the elevators, heating systems and purchase of fuel;
(5) up to 90 suites are painted each year by the employees;
(6) the appellant company has two offices and the telephones are listed in the managers' names;
(7) the appellant company has a car which is used in part for business.
3 Three witnesses testified that such buildings necessitate a great deal of work; that each employee has to work on a full-time basis; and that without the eight employees, such apartment buildings could not be rented properly for income-producing purposes.
4 In 1972 the appellant company earned a total rental income of $478,890.99 and incurred expenses in the amount of $389,554.17.
5 Counsel for the Minister argued, among other things, that the renting of suites produces investment income and does not necessarily constitute an active business, according to his interpretation of section 125 of the Income Tax Act, SC 1970–71–72, c 63; that all the services provided by the appellant company were the necessary ones that the owner of a building must furnish to his tenants; that in the present appeal the nature of the services provided did not constitute the operating of an active business, as the said services were simply inherent in the holding of income-producing investments such as these buildings; and that the income was simply rental income and could not be regarded as business income.
6 According to my interpretation of section 125, one must look at the degree of activity in order to decide whether or not an appellant is carrying on an active business.
7 In the present appeal, the appellant is not an individual but a company, and such an artificial person is usually created to do business. Furthermore, the appellant company hired eight employees on a full-time basis and collected almost $500,000 a year in rents. This in fact represents a great deal of activity, and it is difficult to conceive that such activity would not brand the appellant company as the operator of an active business.
8 The type of business engaged in should not be the determining factor in deciding what is an active business. It is purely a question of fact whether a taxpayer is operating an active business or not.
9 On the evidence adduced, the appellant company was actively operating the business of managing and maintaining commercial buildings for the purpose of deriving revenue therefrom. I agree with the thinking of Mr Fordham in his decision in No 196 v. MNR, 11 Tax A.B.C. 312, 54 D.T.C. 468, where, according to the DTC headnote, he held that:
... Unlike securities, the commercial buildings do not take care of themselves. They must be managed, supervised and supplied. Hotel-keeping is unquestionably a business and so is operating any large office building.
10 This reasoning applies to the apartment buildings operated by the appellant in the case at bar.
11 In the light of that decision and for the reasons given above, the appeal is allowed.
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