David Bazar was good enough to forward to me an interesting case on the meaning of “active business” in the Income Tax Act. In Ollenberger v R, 2013 FCA 74, the Court was called on to consider whether the use of the word “active” in the phrase required something more than just any business that is not a “specified investment business” or a “personal services business”. The Court held that “active” did no such thing.
The Court wrote:
[27] This reading is consistent with the legislative history surrounding the words “active business”. The notion was first introduced into the Act at the time of the 1972 reform. It was intended to distinguish corporations that generate income from business activity from those which generate so-called “passive” income. The purpose was to provide for the application of a more favorable tax rate on the former (see section 125, RSC 1952, c. 148, as amended by 1970-71-72, c. 63).
[28] However, as Sharlow J.A. pointed out in Weaver v. Canada, 2008 FCA 238, at paragraphs 19 and 20, the experience was not successful. Indeed, the Courts focused on the fact that by definition, the carrying on of a business requires a minimum degree of activity with the result that most corporations, if not all, qualified.
[29] This is what brought the legislator to change course in 1984. At that time the definition of “active business” was first introduced (1984, c. 45, ss. 92(1) and 40(1)), and has since remained unaltered. The definition effectively recognizes that any business being carried on is an active business, but rather carves out of this definition particular businesses such as those which derive their income from property and do so without the need to employ a certain number of employees (see the definition of “specified investment business” in subsection 125(7)).
[30] The issue therefore is whether AEF was carrying on an “active business” as defined. When regard is had to this definition, AEF must be held to qualify if it was carrying on business at the relevant time. In this regard, the admission by the respondent that AEF was actively pursuing ventures involving the acquisition of oil and gas properties necessarily leads to the conclusion that this condition was met.
