Payer, a Canadian-controlled private corporation carrying on an active business, pays fair market value rent for the use of real property owned by Recipient. Would such rental income, which is deemed to be active business income (“Deemed ABI”) pursuant to s. 129(6), be included in computing Recipient’s adjusted aggregate investment income (“AAII”) as defined in s. 125(7)?
After noting that, in determining Recipient’s “income from a source that is property,” s. 129(6)(a)(i) excludes any amount that Payer deducted in computing its active business income (i.e., such rent), and that once a CCPC’s aggregate investment income (“AII”), as defined in s. 129(4), is known, it can then determine its AAII by making certain adjustments as are prescribed in paras. (a) to (d) of the definition of AAII (“Prescribed Adjustments”), CRA stated, in finding that the rental income received by Recipient would be included in its AII and AAII:
As none of the Prescribed Adjustments deal with Deemed ABI, it is our view that property income that is Deemed ABI by virtue of subsection 129(6) will not be included in the computation of Recipient’s AAII. More specifically, paragraph (c) of the definition of AAII … deals with adjustments to the definition of "income" or "loss" as defined in subsection 129(4) and does not provide for any adjustment related to the Deemed ABI which is defined under paragraph 129(6)(b).