From: canada.revenue.agency@canada.com   
      
   Shelter Inc. ? :CRA SOTW    
      
   Shelter Inc.?   
      
   Jaime Golombek   
   National Post,    
      
   If you operate your small business through a corporation, no doubt you are   
   fully aware of the two main potential tax advantages: a preferential corporate   
   tax rate on the first $500,000 of "active business income" as well as access   
   to the $750,000    
   lifetime capital-gains exemption, which may be used to shelter from tax some   
   or all of the capital gain on the ultimate sale of your business.   
      
   These are significant advantages, so much so that some investors are tempted   
   to transfer their investments into a corporation to take advantage of them.   
   But be aware, the tax rules only grant these advantages to corporations that   
   earn active business    
   income (ABI).   
   In general, the definition of ABI excludes investment income as well as rental   
   income. But that's not always the case. Corporations that do earn such income,   
   but that are sufficiently active that they employ more than five full-time   
   employees, can still    
   qualify for these tax advantages.   
      
   While this phrase "more than five full-time employees" seems ostensibly   
   straightforward, it was the subject of a recent Tax Court decision that   
   directly reverses a long-standing Canada Revenue Agency administrative policy.   
   The case involved a private    
   company that had five full-time employees and two part-time employees. The   
   issue was whether the company employed "more than five full-time employees."   
   The CRA has always maintained, as articulated in its Interpretation Bulletin,   
   "The Small Business    
   Deduction," that "more than five full-time" means the company must employ at   
   least six full-time individuals. The Court disagreed and concluded that having   
   some part-time employees can put you over the "more than five full-time" test.   
      
      
      
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