| 24(1) | 5-901614 |
| Bill Guglich | |
| (613) 957-2102 | |
| 19(1) |
October 23, 1990
Dear Sirs:
This is in reply to your letter of July 16, 1990 concerning the meaning of the term "active business" for purposes of the definition of "small business corporation" in subsection 248(1) of the Income Tax Act (the "Act") as it applies to the following type of situation.
"A Canadian-controlled private corporation (the corporation) has carried on for approximately four years extensive research and development intended to develop a net product and a flexible automated production process. This is the only activity carried on by the Corporation, apart from rendering occasional technical services on a fee-basis to a related corporation. It is the intention of the Corporation that it will manufacture the product and will arrange for it to be distributed by a related corporation. The product was developed some years ago and the research and development has now reached the stage where it is anticipated that the project will be completed within the next year or so. In carrying out the research and development. the Corporation has spent over four million dollars on salaries of technical and administrative staff, renting of premises and the purchase of equipment. Part of its costs have been funded by grants under certain government funding programs".
While we are unable to provide confirmation that the Corporation in the particular situation described in your letter is carrying on an "active business", we can provide the following general comments related to "active business".
For purposes of the Act, subsection 248(1) defines "active business" as any business carried on by a taxpayer resident in Canada, other than a specified investment business or a personal services business. "Business" is defined in subsection 248(1) of the Act to include a profession, calling, trade, manufacture or undertaking of any kind whatever.
Whether the Corporation carries on an "active business" is a question of fact which can only be determined after an examination of all the relevant facts in the particular situation on a retrospective basis. Generally when a corporation does not carry on a "specified investment business" or a "personal services business" the business activities carried on will ordinarily be considered "active business". We agree that the business of a corporation may be considered to have commenced when essential preliminaries, to the carrying on of the business in an active way, are undertaken.
These comments represent our opinion of the law as it generally applies. As indicated in paragraph 24 of Information Circular 70-6R dated December 18, 1978, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.
We trust these comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch