Words and Phrases - "principal business"
2 June 2006 External T.I. 2006-0174671E5 F - Frais de repas et de logement
In finding that employees of a company working in the field of pumping and transporting liquid waste and who typically were required to drive more than two hours to reach the customer site, received taxable benefits on being reimbursed for meals for every 12 hours of work, CRA stated:
Our understanding is that transport is a service ancillary to the other services of the business. … [T]he term transport business does not include a transportation service that is incidental, where the services offered are offered as part of a whole.
23 March 2017 CBA Commodity Taxes Roundtable, Q.1
Leasing companies and third-party administrators (e.g., insurance companies) might have their mix of exempt and taxable activities fluctuate annually above and below 50%. How is “principal business” determined, and is the determination made on an annual basis? CRA responded:
[I]n the context of section 149 … the CRA considers that "principal" refers to the person's chief or main business activity. …
Some factors to be considered, but not limited to, include:
- the total number of supplies made and the total value of the revenue received from supplies made in each business activity;
- the relative value of the assets employed in each business activity;
- the commercial practices of the person, including the time, attention, and efforts expended by the employees, managers, or corporate officers in each business activity; and
- the terms of any partnership agreement if the person is a partnership, or corporate objects in the case of a corporation.
[G]enerally a person does not need to determine its “principal business” on an annual basis; this determination should be made any time there is a significant change to the person’s business activities.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(a) - Subparagraph 149(1)(a)(viii) | multi-factor determination to whether Holdco has a principal business of money-lending | 107 |
15 September 1992 T.I. (Tax Window, No. 24, p. 9, ¶2179)
The expression "distribution or production" should be interpreted broadly and would include "transmission". Whether a corporation's principal business is transmission, is not based solely on its revenues and net income and entails consideration of such factors as income, gross revenue, operating cost, and expenses associated with each business; the capital employed in each business; and the time and effort expended by employees in respect of each business.
Indema Ltd. v. The Queen, 92 DTC 6244, [1992] 1 CTC 309 (FCTD)
The taxpayer was incorporated in 1972 in order to act as a distributor, but four years later its objects were extended and in 1978 it agreed to provide management and administrative services to two connected companies and in the taxation years in question it derived over 97% of its gross income as fees from those corporations. Jerome A.C.J. found that the taxpayer was not carrying on a "non-qualifying business" for purposes of former s. 125(6)(f), i.e., a "business the principal purpose of which is to provide managerial, administrative, financial, maintenance or other similar services ..." to connected businesses given that it was brought into existence to fulfill a genuine business purpose unrelated to the current dispute, it continued to enjoy distributor status in the taxation years under dispute and it fulfilled an objective of obtaining efficiency from a financial and accounting point of view. Accordingly, there are other sound business purposes, some predating and some entirely independent, of those described in s. 125(6)(f).
Minister of National Revenue v. Consolidated Mogul Mines Limited, 68 DTC 5284, [1968] CTC 429, [1969] S.C.R. 54
In its 1957 to 1960 taxation years, the taxpayer carried on exploration work on properties in which it had a direct interest. However, its chief task was the development and management of properties owned by other companies in which it usually had a share interest. It generally subscribed for shares in a corporation owning prospects and by contract with the corporation controlled the expenditure of the invested money on exploration.
After noting that s. 83A(3) referred to a company whose "principal business is mining or exploring for minerals" without requiring "that such mining or exploring for minerals should be done within Canada or should be done upon properties in which the taxpayer seeking the deduction has an interest in the property" (p. 5286), Spence, J. went on to find that the taxpayer was engaged in mining and exploring for minerals and that this was its principal business. In response to a submission of the Minister referring to the large investment portfolio held by the taxpayer, he stated (p. 5286):
It may be said generally that although the source of the income of a corporation is an important element to be considered in determining which is its principal business it is not the only matter to be considered and not necessarily the determinant factor.
He quoted with approval the statement made in the Tax Appeal Board that:
[I\t would appear to be reasonable to assume that the multiplicity of arrangements which exist between mining companies and the constant juggling of shareholdings for various necessary purposes is just part and parcel of the mining business. ... Obviously, the financing function of a mining company is an integral part of its business.
Jenkins v. The Queen, 2005 DTC 384, 2005 TCC 167 (Informal Procedure)
In finding that the principal place of business for the taxpayers, who carried on through a partnership a fishing business using two boats owned by them, was the work space in their home, Miller J. stated (at pp. 386-387):
"... In asking ... what is meant by 'principal place of business', the answer is likely to be: 'where all the business stuff takes place'; not where the oil is drilled or crop is cut, or fish are fished, but where those necessary elements of telephoning customers and suppliers, filling in invoices, doing payroll, maintaining books and records, contacting authorities for licenses, preparing tax returns, chasing down receivables, handling complaints, creating business plans, preparing financial statements, talking to accountants and lawyers, etc."