Words and Phrases - "principal purpose"
5 October 2018 APFF Roundtable Q. 17, 2018-0768881C6 F - entreprise exploitée activement – revenu de location
In the course of a general discussion as to whether a Canadian-controlled private corporation with rental properties carried on an active business, CRA stated (before referring to the more-than-five full time employee test):
A "specified investment business" is essentially a business, including a business of leasing real or immovable property, the principal purpose of which is to derive income from property, including rents. As stated in paragraph 12 of Interpretation Bulletin IT 73R6, the term "principal purpose" is not a defined term in the Act for the purposes of the definition of "specified investment business" in subsection 125(7), but it is considered to be the main or chief objective for which the business is carried on. In order to identify the "main objective", therefore, an analysis of all factors related to the process needed to earn income is required.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Active Business Carried On by a Corporation | question of fact whether a CCPC with too many employees to have a specified investment business carries on a business | 218 |
0742443 B.C. Ltd. v. The Queen, 2014 DTC 1208 [at at 3811], 2014 TCC 301, aff'd 2015 DTC 5115 [at 6304], 2015 FCA 231
The taxpayer, which had two employees including its shareholder, carried on a storage unit rental business.
Before referring to the "principal purpose" test and stating (at para. 26) that "whether we substitute ‘main' or ‘chief' or primary' or ‘51%', it comes down to an objective determination of what the payor was paying for," C Miller J noted that the taxpayer provided additional services free of charge, mostly respecting assistance in moving items into or out of storage, and stated (at para. 20) that he was not satisfied that "they are indeed core to what customers were paying for." Respecting a submission (at para. 27) that there was no difference with "the motel customer paying for a room", he indicated that even a small motel would be expected to provide additional services, such as utilities (e.g. phone, electricity, Internet), daily room cleaning, linens, parking and amenities, and then stated (at paras. 28-29):
Every hotel customer has an expectation of a bundle of hotel services in addition to the use of a furnished room. I have not been convinced that every customer seeking storage space has any greater expectation than the space itself and not an expectation of a bundle of services equivalent to hotel accommodation.
There is a tipping point where the provision of services overcomes the provision of property. … [A] few services to a few customers does not change the inherent nature of income from property.
The taxpayer was carrying on a specified investment business.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Onus | Minister's pleading of assumptions of law does not relieve taxpayer from entering a case | 106 |