ABOUT THE COURSE

Under ss.125(7), a corporation whose principal purpose is to derive income from property — including rents, interest, dividends, and royalties — is a specified investment business. SIB income is subject to the RDTOH system and taxed at a combined corporate-plus-personal rate approaching 58% at the top bracket, with no meaningful tax deferral advantage. The SIB definition catches more businesses than practitioners expect, and the cases and CRA interpretations that mark the boundary between SIB and active business income are essential to know before advising on any property-income structure.

The course works through the full definitional framework and its practical limits:

• The definition: a business whose principal purpose is to derive income from property; the parenthetical list — interest, dividends, rents, and royalties — is inclusive, not exhaustive; the word "business" is somewhat paradoxical here because the income characterization that follows from it is investment, not active
• The employee exception: SIB status does not apply if throughout the year the corporation employs more than 5 full-time employees in the business; courts have held "more than 5" means at least 5 full-time plus at least 1 part-time; the exception can also be met if an associated corporation provides services and the corporation would reasonably be expected to require more than 5 full-time employees but for that assistance
• Two precision requirements: the employee test must be met throughout the year — not just for most of it; and the employees must be employed in the business, not in an unrelated activity of the same corporation
• The leasing carve‑out: leasing of property other than real property — equipment, cars, trailers, taxis, taxi licences — is excluded from the SIB definition entirely; the rental restriction applies only to real property

The course then covers two traps and two planning strategies. The recapture trap: a rental corporation that employs more than 5 full-time employees throughout most of the year, sells its properties mid-year, and dismisses its staff will likely fail the "throughout the year" test; on recapture of depreciation arising from the sale, the income is likely SIB income because the employee test was not met for the entire year — there may be planning opportunities such as transferring properties between corporations, or timing the sale to occur on or near the last day of the fiscal year.

Two planning strategies are covered that can convert SIB income to active business income: making the corporations associated under ss.129(6), so that rental income paid by one corporation to another is considered active business income of the recipient (where the tenant is an associated corporation and the rent is deducted against its active business income — no anti-avoidance rule prevents deliberate association for this purpose); and reaching the more-than-5-full-time-employee threshold by merging separate rental corporations, taking activities in-house, and hiring enough staff to meet the test across the combined operation.