Principal Issues: [TaxInterpretations translation] How is it determined whether a licence qualifies as "excluded property" as defined in subsection 95(1)?
Position: Question of fact.
Reasons: Application of the Act.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 44
Foreign accrual property income and excluded property
By virtue of the definition of "excluded property" in subsection 95(1), excluded property, at a particular time, of a foreign affiliate (“FA”) of a taxpayer means any property of the foreign affiliate that is used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it.
Questions to the CRA
In a scenario where an FA earns active business income and income other than active business income, how can it be determined whether a licence it uses in the totality of its business is used principally for the purpose of gaining or producing income from an active business carried on by it?
CRA Response
This question refers to paragraph (a) of the definition of "excluded property" found in subsection 95(1). That paragraph provides that excluded property of an FA is property of the FA that is used or held by the FA principally for the purpose of gaining or producing income from an active business carried on by it. There must in particular be income from its business, rather than more generally "income from an active business" as that term is defined in subsection 95(1).
In addition, the determination that property of an FA is at a particular time used or held principally for the purpose of gaining or producing income from an active business is one of fact. The CRA has not issued guidelines on the criteria for allocating the use and holding of property between different sources of income in a particular situation. That determination requires that all relevant facts be reviewed on the basis of criteria (both qualitative and quantitative) that are reasonable and appropriate depending on the circumstances. Thus, the following should be considered in particular: the use that is actually made of the property in the course of the various activities of the FA, the income from the use or possession of the property, the intention of the FA with respect to the use and holding of the property, the terms and conditions of ownership of the property, the nature of the activities of the FA and current practices in the particular industrial sector.
Yannick Roulier
(613) 957-2134
October 8, 2010
2010-037353.