Words and Phrases - "primarily"


16 July 2021 Internal T.I. 2020-0872521I7 - CERS - Qualifying property for rental income

significant additional services transform rental income into income from services

Would the owner of a qualifying property that operates a hotel, or other similar business such as a motel or a bed and breakfast, be considered to use its qualifying property primarily to earn rental income as described in para. (b) of the definition of “qualifying rent expense,” such that it would be prevented from claiming the Canada emergency rent subsidy (“CERS”)?

CRA stated:

Generally, any income earned from the use or occupation of a property or a right to use or occupy property is considered to be rental income. However, where, in addition to basic services that are customarily supplied with rental of real or immovable property, an entity also provides significant additional services that are integral to the success of its ordinary activities, it is the CRA’s longstanding position that the entity would be earning income from the services provided instead of earning rental income from the use or occupation of the property.

Although the term “primarily” is not defined in the Act, “primarily” generally means more than 50% for income tax purposes. … With respect to a building … the use of its square footage is generally an accepted factor that is given significant weight in determining the particular use to which a building is put.

CRA went on to indicate that the application of these tests was a question of fact.

Words and Phrases
rent income primarily

20 May 2014 External T.I. 2014-0517331E5 F - CII - exploitation agricole

test is of intention on acquisition to use over 50%, during months of likely use during the equipment’s lifetime, on farm in the region

Two taxpayers, dealing at arm's length and carrying on an unincorporated farming business, purchased farm equipment in a qualifying region for use on a farm there. However, in the same year, the equipment was also used for a number of months on other farmland owned by them in a non-qualifying region – and the equipment was not used at all in the winter months.

Does the use of the farm equipment in the other region disqualify it, and can each of them claim part of the ITC on the same equipment? CRA responded:

[A]n analysis of the facts must be made … to ascertain the governing intention when the property was acquired. … Thus, the taxpayer must be able to establish the taxpayer’s intention, i.e., to have acquired the new farm equipment primarily for use throughout its lifetime on farm land situated in XXXXXXXXXX.

The term "primarily"… mean[s] more than 50%. The … "operating time" generally refers to the time the equipment usually runs or functions during the taxation year. …

Where there are two co-owners, we agree that it is possible for them to divide the total of qualified property eligible for the ITC between themselves… .

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(27) no ITC reversal if unanticipated transfer of equipment to a farm outside the region 172
Tax Topics - General Concepts - Ownership co-owners entitled to pro rata ITCs 63

S4-F15-C1 - Manufacturing and Processing

Application of "primarily"

1.21 ... [T]he term primarily as used in paragraph 5201(a) of the Regulations signifies principally or chiefly and means more than 50%. A corporation’s activities are generally carried on by its employees. The CRA will look at the employees’ activities to determine if they are engaged principally or chiefly in manufacturing, processing, or something else. In some industries, the use of the company's assets in manufacturing or processing activities may also be considered where the use of labour does not accurately reflect the principal activities of the corporation.

Words and Phrases

Gerbro Holdings Company v. Canada, 2016 TCC 173, briefly aff'd 2018 FCA 197

offshore hedge fund investments were chosen in the main for commercial reasons (e.g., manager reputation), so that s. 94.1 did not apply

The taxpayer (“Gerbro”) was a Canadian investment corporation (owned by a family trust but with an elderly income beneficiary, so that Gerbro was required to have liquid investments) whose board-established investment guidelines specified that between 0% and 30% of its holdings be of directional hedge funds and 0% to 30% be of non-directional hedge funds (i.e., uncorrelated with the equity markets). Gerbro invested in both types of hedge funds, which typically were offshore feeder funds (in a low-tax rate jurisdiction) in a master-feeder structure and with most or all returns reinvested rather than distributed.

In finding that the hedge funds derived their value “primarily” (i.e., “more than 50% of their value” (para. 120)) from portfolio investments, Lamarre ACJ stated (at paras. 101-103):

[T]he ordinary commercial meaning of portfolio investment in the international investment context is an investment in which the investor … is not able to exercise significant control or influence over the property invested in.

... [T]he definition suggests thresholds ranging from 10% to 25% ownership … [although] a small group of well-organized investors could have a controlling interest while having less than 10% ownership… .

[P]ortfolio investments are passive investments that do not entail active management of, or control over, the operations of the underlying investment… .

Turning to the “main reason” test, Lamarre ACJ found (at para. 158) that “while tax deferral was an ancillary reason prompting Gerbro to invest in the Funds, none of its main reasons was tax deferral.” In this regard, she stated (at para. 165) that “the more important a reason for investing is, the harder it will be to elevate another reason, such as obtaining a tax deferral benefit, to the same level” before referring (at para. 167) to “overarching commercial reason[s] for investing" in these Funds,” (at para. 170) that “Gerbro was very concerned with the reputation of the mangers it invested with” and (at para. 172) that “access to the mangers of the Funds was only possible for Gerbro through offshore hedge funds, and these types of alternative investments only made up a part of Gerbro’s investment portfolio.” Furthermore, the Funds satisfied Gerbro’s liquidity criteria (para. 173).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus no taxpayer burden to displace assumptions of mixed fact and law 71
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. Minister's statement was false 130
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 145 - Subsection 145(3) expert's report did not include all the underlying data 115

Will Kare Paving & Contracting Ltd. v. The Queen, 98 DTC 6203 (FCA)

The taxpayer purchased an asphalt plant with the expectation that it would sell up to 40% of the production of the plant to third parties and use the balance in its own asphalt paving business. In fact, only 25% of the plant's production was sold to third parties.

The Tax Court Judge had "correctly ascribed to 'primarily' in this context the meaning of 'most important'" in concluding that the property had not been acquired primarily for manufacturing goods for sale. Furthermore, the Coopers & Lybrand case (94 DTC 6541) had been properly applied in finding that the taxpayer's own use under contracts that were for working materials and not in respect of the sale of goods did not represent the purchase of "goods for sale or lease".

Words and Phrases

Plamondon v. The Queen, 2011 DTC 1137 [at 746], 2011 TCC 47 (Informal Procedure)

each donated dried insect was separate property

Hogan J found that dried insects donated by the taxpayer to Laval University were individually appraised and did not "form an unbreakable set," and thus were not a set (as per s. 46(3)), so that under s. 46(1), each insect had an adjusted cost base of $1,000. Before so concluding, he disagreed with the expansive interpretation of personal-use property in Klotz, stating (at para. 15):

In English, the ITA uses the word "primarily". The Oxford English Dictionary, third edition, defines "primarily" as follows: "to a great or the greatest degree; for the most part, mainly". Thus, the property must unequivocally be for the use and enjoyment of the taxpayer. If Parliament had wanted there to be only two types of property, it could have defined PUP as all property that is not income property… However, that was not what Parliament did.

Here, the taxpayer "prepared them only for donation. There was no real use" (para. 19) (after citing Glaxo Wellcome as to "use").

Words and Phrases
use primarily

Burger King Restaurants of Canada Inc. v. Canada, 2000 DTC 6061 (FCA)

Although Burger King restaurant were used for "processing" (given that the ordinary meaning of that word did not exclude the preparation of food), the taxpayer was unable to adduce sufficient evidence of qualitative factors that would detract from a conclusion that the buildings of the taxpayer's fast food chain were not used "primarily" for processing given that approximately 46.5% of the space was used for processing.

Words and Phrases