A personal trust resident in Canada (the “Trust”) has a stand-alone operation of renting out Canadian residential and commercial buildings owned by it. Its services include taking care of electricity, heating and water, and maintenance services. For the commercial buildings, it also offers cleaning and security services. Is the Trust considered to carry on a business where all the property management services are provided by an external manager dealing at arm’s length with it and its beneficiaries?
Regarding the relevance of the external manager, CRA stated that even though in general the Trust and the Manager deal with each other at arm's length, it seems reasonable to consider that the Manager, in providing its management and services, is acting on behalf of the Trust.”
CRA then referred to IT-434R, including the statements in para. 4 that “the renting of real property by an individual … will be regarded as a business operation only when the landlord supplies or makes available to tenants services of one kind or another to such an extent that the rental operation has gone beyond the mere rental of real property,” and that, accordingly, other factors such as “[t]he size or number of properties being rented” and “the extent to which their management or supervision occupies the owner's time” are not “to be taken into account in determining if the operation is a business.” Furthermore, CRA here noted that the “Bulletin list[s] the basic services (e.g. heating, parking, laundry room, etc.) that are generally considered to be an inherent part of the rental activity,” but also referred “for example, to cleaning and protective services in respect of rented accommodation” as being additional services that may indicate that “it is possible that the landlord is carrying on a business rather than simply renting out real estate.”
Accordingly, based on the brief factual description “it would therefore be possible to consider that the Trust is carrying on a business because of the number and nature of the services offered.” CRA also stated:
[T]he fact that the Trust entrusts an external manager with the responsibility of providing some of the services it offers as a landlord will not in itself have any impact on the nature of its income.