Aco carries on a business of renting its own real estate - as well as holding shares of various operating companies on which it regularly receives dividends and also earning interest income on loans to related companies. The latter two “passive” investing activities require very little time and effort of Aco's management.
For purposes of s. 1100(12) of the Income Tax Regulations ("I.T.R."), does CRA consider Aco's principal business to be the “leasing, rental, development, or sale, or any combination thereof” of real property owned by it if the income from and the capital invested in the two passive activities represent more than 50% of Aco's total income and invested capital? After noting that it could not respond definitively to the presented facts, CRA responded:
As indicated in … IT-206R[, para. 2] the question of whether the carrying on of two or more simultaneous business operations by a taxpayer is the same business is dependent upon, among other things, the degree of interconnection, interlacing or interdependence existing between the business operations. The factors to be considered in making this determination are set out in … IT-206R[, para. 3].
… [T] he question of what is the principal business of a taxpayer that is a corporation within the meaning of subsection 1100(12) I.T.R. is a question of fact … .
As stated in … IT-371[, para. 7], there are no established criteria. … [T]he following factors are among those that may be relevant:
(a) the profits realized by each of the businesses;
(b) the volume and the value of the gross sales or transactions of each business;
(c) the value of the assets of each business;
(d) the capital employed in each business; and
(e) the time, attention and effort expended by the employees, agents or officers in each business.
While the revenue or profit criteria may be important, they will not necessarily be determinative.