http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/212520/index.do
Skartaris Holdings Ltd. (November 9, 2016 – 2016 TCC 278, V. Miller J.).
Précis: The taxpayer owned a number of homes which it rented out. Its only significant source of income was rents. It had no employees. CRA denied its claim for the Small Business Deduction. The Tax Court held that its principal business was earning income from property, that it was a “specified investment business” and denied its appeal. There was no order as to costs since this was an informal procedure appeal.
Decision: The only witness at trial was the owner of the corporate appellant, Mr. Maki. He did not impress the Court with his testimony:
[11] Mr. Maki testified that the Appellant’s “principal purpose” in 2010 and 2011 was to earn income from the purchase and sale of real property. The documentary evidence does not support his testimony.
[12] In its 2010 and 2011 income tax returns, the Appellant described its operations as the “rental of residential properties”. It declared that 100% of its revenue was earned from the rental of residential properties.
[13] The Appellant claimed capital cost allowance on its properties in each of the 2008 to 2011 taxation years.
[14] At the hearing, in response to a question from me, Mr. Maki stated that when the Appellant sold the various properties, it reported a capital gain. However, after the hearing, he wrote to the Court that he had been mistaken and that the Appellant had reported the gain as income.
[15] Mr. Maki’s out of court statement is not evidence before me.
[16] It is my view that the Appellant’s “principal purpose” in 2010 and 2011 was to earn income from the rental of residential properties.
[17] During his testimony, Mr. Maki agreed with the assumptions made by the Minister that:
a) The Appellant was not associated with a corporation that provided managerial, administrative, financial, maintenance or other similar service to it; and,
b) At all material times, the Appellant did not have more than five full-time employees.
[18] More specifically, Mr. Maki stated that the Appellant has never had any employees.
[19] As a result, it is also my view that the Appellant is a “specified investment business”. It did not earn income from an “active business” in 2010 and 2011 and it is not entitled to the small business deduction.
As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.