chap12 - CHAPTER 12 Integration for Business and Investment...

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Unformatted text preview: CHAPTER 12 Integration for Business and Investment Income of the Private Corporation Problem 1 [ITA: 125(7)] The taxpayer company, a private corporation, owned and operated a small shopping centre from which it received rental income. There were seven separate tenants, only one of them being what is sometimes referred to as a Triple A tenant, namely, a Canadian bank. The corporation, through its principal officer, negotiated all the leases, took care of all the complaints from the tenants and arranged for the maintenance of the shopping centre. It required some activity by the company almost daily. The rental income of the company was mainly for use of the property, but also, to a much lesser extent, for services and other things supplied by the company such as heat, repairs, etc. REQUIRED From the facts provided in the case, determine the type of income that the corporation derives from the business that it carries on under the current legislation. 9 Introduction to Federal Income Taxation in Canada Solution 1 [Note: The facts of this case are those of The Queen v. Cadboro Bay Holdings Ltd., (F.C.T.D.) 77 DTC 5115. However, the legislation, under which the case was decided, did not contain a definition of active business or specified investment business.] Under the current legislation, an active business [ssec. 125(7)] is any business other than a specified investment business [ssec. 125(7)] or a personal services business [ssec. 125(7)]. As a result, if a business is not a specified investment business or a personal services business, it is an active business. Consider the definition of specified investment business. It is a business other than a business carried on by a credit union. This case does not involve a credit union. The business of leasing property other than real property, i.e., the leasing of movable property, is not a specified investment business. However, the facts of this case indicate the leasing of real property, i.e., land and buildings in a small shopping centre. This activity fits the definition of a specified investment business. Furthermore, the principal purpose of the business is to derive income from rents. Since the facts of the case do not indicate that there are more than five full-time employees of the taxpayer corporation, the exception in paragraph ( a ) of the definition in subsection 125(7) is not met. Since there is no indication of an associated corporation providing services to the taxpayer corporation that would otherwise be performed by more than five full-time employees of the taxpayer corporation, the exception in paragraph ( b ) of the definition in subsection 125(7) is not met....
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chap12 - CHAPTER 12 Integration for Business and Investment...

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