A-371-75
The Queen (Appellant)
v.
Rockmore Investments Ltd. (Respondent)
Court of Appeal, Jackett C.J., Pratte J. and Hyde
D.J. Montreal, April 1 and 2, 1976.
Income tax—Small business deduction Meaning of active
business income—Associated companies investing in mort-
gages—Whether "carrying on active business in Canada"
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 3(a), 125, 129,
248.
Respondent and two other companies M.R.T. and E.S.G.
were incorporated to invest in mortgages. Messrs. Godel and
Reinhart own M.R.T. and Rockmore, and manage all three.
Most of the loans made by the companies are through
independent agents. Respondent appealed its assessment to the
Trial Division, where appellant argued that, in 1972, the com
panies were not carrying on active business in the sense intend
ed under section 125. The appeals by Rockmore and M.R.T.
were allowed, on the basis that income for 1972 was "from an
active business carried on in Canada" within the meaning of
section 125(1). Appellant appealed.
Held, the appeal is dismissed. The first step is to determine
whether there is a "business", which is defined in section 248.
Section 3(a) makes it clear that a line must be drawn between
mere investment in property and "an adventure ... in the
nature of trade" or a "trade" in the sense of those expressions
in section 248. Otherwise, each problem as to whether a
business is being carried on depends on the particular facts.
There is no reason for interfering with the finding of the Trial
Judge. Secondly, as to whether the "business" was "active",
each case must once again depend on the circumstances. The
concept is not used to exclude a business in an absolute state of
suspension, because section 125(1)(a)(i) is dealing with
"income ... from an active business", and it must be assumed
that "active" was used to exclude some businesses having
sufficient activity to give rise to income.
Clevite Development Limited v. M.N.R. [1961] Ex.C.R.
296, considered.
APPEAL.
COUNSEL:
G. W. Ainslie, Q.C., and T. W. Ocrane for
appellant.
A. Gauthier and M. Noël for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Verchère, Primeau & Gauthier, Montreal, for
respondent.
The following are the reasons for judgment
delivered orally in English by
JACKETT C.J.: This is an appeal from a judg
ment of the Trial Division allowing an appeal
from the respondent's assessment under Part I of
the Income Tax Act for the 1972 taxation year
and referring that assessment back to the Minister
of National Revenue, in effect, for reassessment on
the basis that the respondent's income for that
year was income "from an active business carried
on in Canada" within the meaning of those words
as found in that part of section 125(1) of the
aforesaid Act that reads as follows:
125. (1) There may be deducted from the tax otherwise
payable under this Part for a taxation year by a corporation
that was, throughout the year, a Canadian-controlled private
corporation, an amount equal to 25% of the least of
(a) the amount, if any, by which
(i) the aggregate of all amounts each of which is the
income of the corporation for the year from an active
business carried on in Canada,
exceeds
(ii) the aggregate of all amounts each of which is a loss of
the corporation for the year from an active business car
ried on in Canada,
The main thrust of the very able argument of
counsel for the appellant, as I understood it, was
that
(a) alleviation of income tax of private corpora
tions under Part I of the Income Tax Act is to
be found, in so far as income from active busi
nesses is concerned, in section 125, and, in so far
as income from businesses other than active
businesses is concerned, in section 129;
(b) a study of the schemes involved in section
125 and section 129 reveals a limitation that
must be read into the phrase "active business"
See: M.R.T. Investments Ltd. v. The Queen [1976] 1 F.C.
126.
in order to implement the Parliamentary inten
tion; and
(c) such limitation either is, or includes (I am
not sure which), an exclusion from the concept
of active business of any business that consists of
lending money on mortgages.
Counsel made it clear that the application of those
two sections has given rise to much difficulty and
that many matters are being held in abeyance in
the hope that guidance may be obtained from the
decision in this case.
The task of counsel was not easy because inter
alia the provisions in question are not so framed as
to make their raison d'être patent to the uninitiat
ed. In spite of my best efforts to follow counsel in
his attempt to show that Parliament must have
intended some limitation on the scope of the words
"active business" that it did not expressly state, I
have to confess my complete inability to detect any
such Parliamentary intent.
In considering whether there is an "active busi
ness" for the purposes of Part I, the first step is to
decide whether there is a "business" within the
meaning of that word. Section 248 provides that
that word, when used in the Income Tax Act,
includes "a profession, calling, trade, manufacture
or undertaking of any kind whatever" and includes
"an adventure or concern in the nature of trade"
but does not include "an office or employment".
Furthermore, the contrast in section 3(a) of the
Act between "business" and "property" as sources
of income makes it clear, I think, that a line must
be drawn, for the purposes of the Act, between
mere investment in property (including mortgages)
for the acquisition of income from that property
and an activity or activities that constitute "an
adventure or concern in the nature of trade" or a
"trade" in the sense of those expressions in section
248 (supra). Apart from these provisions, I know
of no special considerations to be taken into
account from a legal point of view in deciding
whether an activity or situation constitutes the
carrying on of a business for the purposes of Part I
of the Income Tax Act. Subject thereto, as I
understand it, each problem that arises as to
whether a business is or was being carried on must
be solved as a question of fact having regard to the
circumstances of the particular case.
In this case, I can see no ground for interfering
with the finding of the Trial Division that the
respondent's activities, which are carefully
analyzed by the learned Trial Judge, constituted
the carrying on of a money-lending business.
Having reached that conclusion, the second
question to be answered is whether the business
that was being carried on was an "active" business
within the intent of section 125. Obviously, the
concept of "active" business is not used to exclude
a business that is in an absolute state of suspension
because section 125(1)(a)(i) is dealing with
"income ... from an active business" and it must
be assumed that the word "active" was used to
exclude some businesses having sufficient activity
in the year to give rise to income. 2 More than that,
as it seems to me, nothing can be said in a general
way, at this stage, as to what is meant by the word
"active" in section 125(1)(a)(i). 3 Each case must
be dealt with by the fact finder according to the
circumstances of the case. It may be that experi
ence in the application of the provision will make
evident other conclusions of a general nature that
can be deduced from the statute as to how the
concept of "active" business is to be applied. I do
not, myself, feel capable of deducing any such
general conclusion at the present time.
In so far as this case is concerned, I agree with
the learned Trial Judge that the evidence shows
that the respondent was "actively carrying on busi
ness in the year 1972" and, in the circumstances,
in my view, its income for that year was therefore
"income ... from an active business".
2 Compare Clevite Development Limited v. M.N.R. [1961]
Ex.C.R. 296.
3 As I read section 125(1)(a)(i), the question is whether the
"business" was "active" and the question as to how active the
proprietor was in the business activities would not seem to be
relevant. To me, this would seem self-evident and its statement
does not constitute the enunciation of any general principle.
In my opinion, the appeal should be dismissed
with costs.
* * *
PRATTE J. concurred.
* * *
HYDE D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.