Principal Issues: Where a business has no business income because it derives income from property, would the corporation's shares qualify as excluded shares.
Position: No.
Reasons: In accordance with the legislation and tax policy.
STEP CRA Roundtable – May 29, 2018
QUESTION 7. Split Income – Excluded shares and business income
Assume that a corporation has no business income because it derives income from property (possibly rental income from real property where the activities are not sufficient to constitute business income). In this case, can the shares of the corporation be excluded shares?
CRA Response
No. If a corporation has no business income, its shares cannot qualify as excluded shares.
Shares will qualify as excluded shares if and only if the conditions in paragraphs (a) to (c) of the “excluded shares” definition are met. In order to meet the condition in subparagraph (a)(i) that less than 90% of the business income of the corporation is from the provision of services, the corporation must have business income to test.
Expressed mathematically, the following must be true for the condition to be met:
(Services Income) < 0.9(Business Income)
If both Services Income and Business Income equal zero, that statement is not true.
Jean Lafrenière
2018-074403