FEB 15 1982 M. Guévremont (615) 995-1327
Dear Sir:
This is in reply to your letter of December 22, 1981 wherein you request an opinion on the treatment of investment income earned from the rentals of ocean-going freight containers.
The facts as we understand them are as follows:
XXXX
Your question
2. You are wondering in which prescribed class for capital cost allowance purposes these containers would be included in and what would be the applicable tax rate to either a Canadian corporate taxpayer or a private investor for income tax purposes.
Our Comments
3.1 Per our review of the documentation submitted, it appears to us that the containers would qualify for inclusion in Class 8 asset which provides for a deduction for capital cost allowance not exceeding 20% of the undepreciated capital cost as of the end of the taxation year (before making any deduction for capital cost allowance for the year) of property of that class.
3.2 It is our opinion that these containers would qualify as leasing properties and would be subject to capital cost allowance restrictions to the income earned for the year from such leasing property. Such restrictions would not apply to a taxpayer that was, throughout the year, a corporation whose principal business was renting or leasing of leasing property if the gross revenue of the corporation for the year from such principal business was not less than 90% of the gross revenue of the corporation for the year from all sources. However, it is a question of fact on whether or not the corporation's principal business is renting or leasing of leasing property.
3.3 It is also our view that the taxpayer would be paying taxes at the normal corporate tax rate of 46%. However, if the taxpayer is entitled to a small business deduction, the effective tax rate would be reduced to 25% on its active business income earned in Canada. It is a question of fact if an active business is being carried on in Canada.
3.4 If the income is considered to be investment income, the effective tax rate would also be reduced to 25% once the corporation has paid out taxable dividends on shares of its capital stock.
3.5 For an individual investor, the capital cost allowance deductions would be restricted to the income earned from such activities pursuant to Regulation 1100(15) of the Act and the net income, if any, would be taxable at the appropriate individual tax rates.
We enclose for your information, a copy of Regulations 1100(15 to 17) and Interpretation Bulletin IT-443 issued by the Department. Should you require more information or have any further questions, may we suggest that you contact your local district office for further assistance.
We trust that our comments and this information will be of assistance to you.
Yours truly,
for Director Corporate Rulings Division Legislation Branch