2018-0744031C6 2018 STEP -Q7 – Excluded Shares

Principal Issues: Where a business has no business income because it derives income from property, would the corporation's shares qualify as excluded shares.

Position: No.

Reasons: In accordance with the legislation and tax policy.

Author: Lafrenière, Jean
Section: 120.4(1)

STEP CRA Roundtable – May 29, 2018

QUESTION 7.  Split Income – Excluded shares and business income

Assume that a corporation has no business income because it derives income from property (possibly rental income from real property where the activities are not sufficient to constitute business income).  In this case, can the shares of the corporation be excluded shares?

CRA Response

No.  If a corporation has no business income, its shares cannot qualify as excluded shares.

Shares will qualify as excluded shares if and only if the conditions in paragraphs (a) to (c) of the “excluded shares” definition are met.  In order to meet the condition in subparagraph (a)(i) that less than 90% of the business income of the corporation is from the provision of services, the corporation must have business income to test.

Expressed mathematically, the following must be true for the condition to be met:

      (Services Income) < 0.9(Business Income)

If both Services Income and Business Income equal zero, that statement is not true.

Jean Lafrenière
2018-074403

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2018

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2018