Tax Court of Canada


Tax

Income tax

Corporations

Taxpayer’s rental business considered specified investment business unless exception applied

Taxpayer’s business consisted of earning rental income from residential properties. Taxpayer received services from associated corporations P Ltd. and W Ltd., which were directly or indirectly controlled by same family as was taxpayer. Taxpayer used arm’s length property management company D Ltd.. Taxpayer employed fewer than five full-time employees. Taxpayer claimed small business deduction in s. 125(1) of Income Tax Act, which could be applied to income earned by corporation from “active business” unless corporation carried on specified investment business. Specified investment business did not include business that had more than five full-time employees or could, without services of associated corporations, reasonably be expected to require more than five full-time employees. Minister of National Revenue denied deduction on basis that taxpayer carried on specified investment business. Taxpayer appealed. Appeals dismissed. Taxpayer’s rental business would be considered specified investment business unless exception applied. Taxpayer did not directly employ more than five full-time employees. One employee was full-time only partially through each of two tax years, couples split one full-time position between them, and another employee split time with P Ltd.. Taxpayer did not require more than five full-time employees but for services provided by P Ltd. and W Ltd., so it carried on specified investment business. Taxpayer did not establish that it would need full-time CEO, accountant and accounting clerk but for services provided by associated corporations. Taxpayer established that it would require one full-time employee as building manager.

Huntly Investments Limited v. Her Majesty The Queen (2017), 2017 CarswellNat 7395, 2017 TCC 255, B. Paris J. (T.C.C. [General Procedure]).

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