In 0742443 B.C. Ltd. v. The Queen, 2014 TCC 301, the company provided storage units along with other services.  The company argued that its net revenue from all activities constituted active business income for purposes of the small business tax regime in s. 125.  The Tax Court disagreed.  Here are some brief observations.

  1. There was no question company carried on a business.  The company was not merely a passive person simply drawing income from property.  Rather, the company was engaged in at least some activity connected with earning rental revenue.  Accordingly, the company was earning income from business, not income from property – as a general principle.
  2. However, carrying on a business (alone) is not sufficient to gain access to the preferential tax rate in s. 125 (paragraph 14).  Excluded from this preferential rate is a business the principal purpose of which is to derive income from property (paragraph 14).  This statutory test looks to the nature of the revenues earned in the business (paragraph 15).
  3. On the facts, the principal purpose of the company’s business was to derive rental revenues from its storage units.  In some cases, there may come a tipping point where the provision of services overcomes the provision of property (paragraph 29).  This tipping point was not reached on the facts here.