| 24(1) | 5-902269 |
| T. Murphy | |
| (613) 957-2744 |
19(1)
December 21, 1990
Dear Sirs:
Re: Definition of Specified Investment Business Paragraph 125(7)(e) of the Income Tax Act (the "Act")
We are writing in reply to your letter dated August 23, 1990 in which you requested our views on the tests to be applied in order to determine whether a corporation is carrying on an active business or a specified investment business, in a situation where the exceptions set out in subparagraphs 125(7)(e)(i) and (ii) are not met and the corporation has only one contract with another taxpayer whereby it provides both office premises and substantial equipment.
The query raised in your letter relates to the bracketed exception in the definition of specified investment business in paragraph 125(7)(e) in respect of "...a business (other than... a business of leasing property other than real property) the principal purpose of which is to derive income from property..." Specifically, you have asked whether in the situation which you described, criteria such as the value of the office premises and equipment and the amount of rental income generated from each type of property would be relevant in interpreting these words.
In our opinion, criteria such as those mentioned above would be relevant where a taxpayer carried on more than one business in a taxation year and it was necessary to determine which business was the taxpayer's principal business (see Interpretation Bulletin 27-371). If a corporation had only one contract under which it provided office premises and equipment, we would question whether the corporation was carrying on a business or was simply earning income from property. Where a corporation's only activity was carrying on one business and the facts established that the activity could not be properly characterized as two separate businesses, the corporation would not be in the business of leasing property other than real property for purposes of paragraph 125(7)(e) as it would be in the one business of leasing both equipment and real property. Therefore, the corporation would be carrying on a specified investment business. We have not taken any general position to view a corporation in such a situation as carrying on two separate businesses, as the number of businesses carried on by a corporation is a question of fact.
Our comments herein, which represent our general observations on the matter which you raised, are provided pursuant to the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990. If you have a specific concern involving a completed transaction, you may wish to refer it to the responsible district taxation office.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate