Active business income from rental earnings generated from the smaller section of a building

Dive into the intricacies of active business income as the CRA sheds light on rental earnings from unused building space. Uncover key considerations for corporations in optimizing their financial strategies and navigating taxation nuances.

The CRA suggests that the rental earnings generated from the smaller section of a building, which is not utilized for manufacturing purposes, may be considered as active business income.

A corporation owned a building, 65% of which is used in its manufacturing business, and the remaining 35% is leased to a third party.

CRA indicated that “rental income may constitute incidental income of a business if, for example, the excess space was rented on a temporary basis, i.e., with the intention of using that portion of the building for the very near future expansion of the business's activities, or because the rental is related to the business's activities,” but thought that the facts here did not fit that pattern.

CRA stated that, in determining whether, under subpara. (b)(ii), the rental income was derived from property that was used or held principally for the purpose of gaining or producing income from an active business

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