2016-0647271E5 Campgrounds and the Small Business Deduction

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Income tax treatment of income earned by a corporation operating a campground. Can it claim a SBD?

Position: Question of fact but it is possible if sufficient services are provided.

Reasons: The law.

Author: Cooke, Michael
Section: 125(1); 125(7)

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May 16, 2016


Re:   Campgrounds and the Small Business Deduction

Thank you for your correspondence of April 26, 2016, wherein you expressed your concern about the taxation of a corporation that carries on a business of operating a campground.

In particular, it appears that you are concerned that the Canada Revenue Agency (CRA) has taken the position that a corporation carrying on such a business would never be considered to have active business income such that it could not claim the “small business deduction” (SBD) under subsection 125(1) of the Income Tax Act (Act).

The CRA’s comments on the SBD can be found in Interpretation Bulletin, IT-73R6, The Small Business Deduction.  In order for a corporation to be able to claim a SBD, there are a number of conditions that must be satisfied.  For example, the SBD may only be claimed by a corporation that was throughout the taxation year a “Canadian-controlled private corporation” (CCPC) in respect of “income of the corporation for the year from an active business” carried on by it in Canada.  The expression “active business carried on by a corporation” is defined in the Act, and means any business carried on by a corporation other than a “specified investment business” or a “personal services business”.

A specified investment business (SIB) is defined in subsection 125(7) of the Act, and generally means a business carried on by a corporation in a taxation year the principal purpose of which is to derive certain income from property (such as rent from real property) unless the corporation meets one of two conditions:

(a)   the particular corporation employs in the business throughout the taxation year more than 5 full-time employees; or

(b)   another corporation associated with the particular corporation provides, in the course of carrying on an active business, managerial, administrative, financial, maintenance or other similar services to the particular corporation in the year and it is reasonable to assume that the particular corporation would have required more than 5 full-time employees in its business if those services had not been provided.

In very general terms, if the principal purpose of a corporation’s business is to earn income from renting real property and only basic services typical to that type of rental operation are provided, then that business would be a SIB unless one of the conditions mentioned in (a) and (b) above applies.  If a business is a SIB, then income from that business would not qualify for the SBD.

However, where in addition to basic services the corporation also provides significant additional services that are integral to the success of that business operation, the principal purpose of that business would not be to derive income from property.  Therefore, the business would not be a SIB.  Paragraph 2 to 8 of Interpretation Bulletin, IT-434R, Rental of Real Property by Individual, may provide some guidance on the types of services that could be taken into account.

With respect to campgrounds, given their seasonal nature, the CRA understands that in many cases the corporation carrying on such a business would not typically employ more than 5 full-time employees throughout the year.  Therefore, in these types of situations the ability for a corporation that is a CCPC to claim a SBD can only be determined, on a case-by-case basis, by considering the specific facts and types of services provided by the particular corporation.

The Department of Finance is responsible for matters concerning tax policy and changes to tax legislation. We understand that after consultations held in 2015, the Government announced in Budget 2016 that it is not proposing any changes to the tax legislation discussed above.

We trust our comments will be of assistance.

Yours truly,


Michael Cooke, C.P.A., C.A.
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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