29 May 2012 CTF Prairie Tax Roundtable, 2012-0445341C6 - Meaning of business as used in subsection 84(2) -- summary under Subsection 84(2)

CRA would generally not differentiate between a corporation carrying on an active business and a corporation carrying on a business of earning income from property when considering whether funds or property of a corporation resident in Canada have been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders, on the winding-up, discontinuance or reorganization of the corporation's business.

Moreover, the Federal Court of Canada, Trial Division has mentioned in Conrad David v. The Queen, 75 DTC 5136, that the word "on" used in the expression "on the winding-up, discontinuance or reorganization of its business" may possibly mean "as a result of" or "consequential to". Therefore, it could be argued that, even if no business exists at the time of the distribution or appropriation of funds or property, such distribution or appropriation could still occur "on" the winding-up, discontinuance or reorganization of the corporation's business if it happens "as a result of" or is "consequential to" the winding-up, discontinuance or reorganization of the business. For example and depending on the circumstances, subsection 84(2) could apply to the distribution by a corporation to its shareholders of funds or investments resulting from the prior sale of operating assets linked to a former business.