Words and Phrases - "income from property"
5 March 2024 External T.I. 2023-0962831E5 - Active business income – Income from solar panels
The sole business activity of a Canadian-controlled private corporation (the “Corporation”) was to build a small utility-scale solar array on bare land and sell the electricity that was generated to a local utility service under the terms of a long-term contract. It hired approximately 5 part-time employees to run the solar panel electricity generating business. After referring to the specified investment property rules, CRA stated:
[I]ncome from property would generally mean the production of revenue from the use of such property that generates income without active and extensive business-like intervention. In other words, income from property is derived from the mere ownership of such property without a significant commitment of time, labour or attention (such as income from interest, dividends, rents and royalties). On the other hand, income from a business requires organization, systematic effort, and a certain degree of activity.
If the course of conduct of the Corporation indicates that the income is produced with active and extensive business-like intervention, and the nature or legal character of the business transactions supports that, then the Corporation could be considered to derive income from a business rather than income from property. Consequently, where the principal purpose of the business carried on by the Corporation is not to derive income from property, any gains or losses from the business may be considered "income of the corporation for the year from an active business" as defined in subsection 125(7) ... .
Hollinger v. M.N.R., 73 D.T.C. 5003, [1972] C.T.C. 592 (FCTD)
The taxpayer was an individual resident in Quebec who took the position that her share of income earned by a New Jersey partnership engaged in bottling soft drinks was income from property, so that she was not subject to tax pursuant to Reg. 2601(2). In rejecting this position, Noël, ACJ stated (at p. 5008):
The source here is clearly, a business source. If income from property has any meaning at all, it can only mean the production of revenue from the use of such property which produces income without the active and extensive, business-like intervention of its owner or someone on his behalf. I have in mind, for instance, property such as bonds or debentures or shares or real property which do not require the exertion of much activity or energy in order to produce the revenue. There is no question that the appellant has entered into a partnership here with her mother and sister and this partnership is clearly operating a business from which she receives her share of the profits. …
The Queen v. Canada Southern Railway Co., 86 DTC 6097, [1986] 1 CTC 284 (FCA)
Dividends that the taxpayer paid to a US shareholder (“Penn Central”) were, as an historical matter, in lieu of amounts that Penn Central otherwise might have derived from the leasing of a railway line used in its business. Ryan J found that the function of regulation 805(1) is to exempt from withholding tax amounts that are subject to taxation under Part I by virtue of falling within subparagraph 115(1)(a)(ii) (income from businesses carried on in Canada). Since dividends credited by the taxpayer to Penn Central were property income to Penn Central, and thus not subject to Part I tax, the exemption in Regulation 805(1) was not available, notwithstanding that the amount of dividends was periodically offset against rental payments which Penn Central owed to the taxpayer in respect of a railway business which Penn Central carried on in Canada.
Ryan J stated (at pp. 6104-6105):
Income which, at first sight, may appear to be income from property may, on closer analysis, turn out to be income from business. Rental income is an obvious example. Rents from property are generally considered to be income from property, but not if the owner so manages the renting as to make a business of it. … [S]ee Wertman … .
[I]t could not be seriously argued that Penn Central was in the business of dealing in stock, and no such submission was made. … There is [however] some authority for the proposition that income from property that is being used in a business may, in appropriate circumstances, be income from the business itself; an example might possibly be income in the form of interest from a bank account, the bank account being used in the day-to-day operation of the business.
…The question is … whether the [Canada Southern] shares themselves constituted a fund “employed and risked” in the business. I simply do not find it possible on the facts to hold that they were.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) | 13 |
Elmridge Country Club Inc. v. The Queen, 99 DTC 5127 (FCA)
Interest income derived by a golf club from the temporary investment of cash surpluses were taxable. Décary J.A. rejected a submission that income from activities that were incidental to the non-profit activities of the club were not intended to be taxable.
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| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | 47 |
Burri v. The Queen, 85 DTC 5287, [1985] 2 CTC 42 (FCTD)
Net rental income which a company derived from an apartment building in its 1978 and 1979 taxation years (managed by an affiliated property management company) was income from property rather than income from an active business. Strayer J stated (at p. 5289):
The services which they [the taxpayer companies] provided to occupants were of a very limited nature and typical of what any owner of a modern apartment building would expect to have to provide. As such they must be seen as incidental to the making of revenue from property through the earning of rent.
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| Tax Topics - General Concepts - Evidence | 54 |
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 | |
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| Tax Topics - General Concepts - Onus | Minister's pleading of assumptions of law does not relieve taxpayer from entering a case | 106 |