0742443 BC Ltd. v. R. - FCA: Appellant was a specified investment business - appeal dismissed

0742443 BC Ltd. v. R. - FCA:  Appellant was a specified investment business - appeal dismissed


0742443 BC Ltd. v. Canada (October 28, 2015 – 2015 FCA 231, Dawson (author), Stratas, De Montigny JJ.A.).

Précis:   The Tax Court concluded that the mini-storage business of the appellant was a specified investment business and therefore not entitled to the small business deduction.  The Federal Court of Appeal agreed and dismissed the appeal with costs.

Decision:  This very succinct decision upholding the Tax Court was delivered from the bench:

[4]               The small business deduction applies to income earned from an active business carried on by a corporation. “Active business carried on by a corporation” is defined by subsection 125(7) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) to mean “any business carried on by the corporation other than a specified investment business...”. In turn, “[s]pecified investment business” is defined in the same subsection as “a business […] the principal purpose of which is to derive income (including interest, dividends, rents and royalties) from property …” (reasons at paragraph 14).

i)                    The phrase “principal purpose of which is to derive income […] from property” is not ambiguous as the appellant contended (reasons at paragraph 31).

ii)                  To determine the “principal purpose” of the appellant’s business, the Judge was required to determine on an objective basis what the appellant’s customers paid for (reasons at paragraph 26).

iii)                The appellant’s customers bought storage space and this is what they paid for (reasons at paragraph 30).

iv)                In the Judge’s view, services provided to the appellant’s customers such as snow removal were requisite support for property income (reasons at paragraph 20).

v)                  It followed that the character of the income earned by the business was rental income from property (reasons at paragraphs 29 and 30).

The appellant’s argument of procedural unfairness met with little success:

[7]               On this appeal, the appellant also argues that it was deprived of procedural fairness because the Judge ignored deficiencies in the Minister’s assumptions of fact set out in her reply.

[8]               As the Judge noted, before trial the appellant moved unsuccessfully to strike the impugned assumptions. No appeal was taken from the order dismissing the appellant’s motion. Thus, the appellant had the opportunity to challenge the Minister’s assumptions and failed. The issue could not be re-litigated at trial. Moreover, we agree with the Judge’s conclusion that the reply permitted the appellant to know the case it was required to meet.

The appeal was dismissed with costs.