When a campground can claim the small business deduction

As summer draws to a close, CRA is reminding campgrounds when they are eligible for the small business deduction.

Canadian-controlled private corporations (CCPCs) can claim the deduction on the first $500,000 in active business income. That income is taxed at 10.5% instead of 15%.

And what’s active business income? Well, it’s anything earned in the course of doing business, except what’s referred to as “specified investment business.” Typically, income such as interest, dividends, rents and royalties from property is non-active. But, if the corporation employs more than five full-time employees in a business that earns that type of income throughout the year, then it may be eligible for the deduction.

Read: Budget narrows access to small biz deduction

The tourism industry has consulted with CRA on this issue, since many tourism operators run rental businesses.

In response, CRA has provided general guidelines, while noting that each business is considered on a case-by-case basis.

“Generally, the business of a campground involves the renting of property and providing basic services typical to that type of rental operation,” CRA says in a release. “In such a situation, the principal purpose of that business would be to earn rental income from real or immovable property, and the corporation would not be eligible for the small business deduction, unless it employs more than five full-time employees in that business throughout the year.”

Read: Finance’s draft legislation tightens Budget 2016 changes

But CRA allows that campgrounds may offer other services while employing fewer than five full-time employees throughout the year.

If the campground provides “significant additional services that are integral to the success of its business operations, the CRA may consider it eligible for the small business deduction.”

Examples of these additional services include:

• coin-operated laundry,
• swimming pool/lifeguard,
• playground,
• refuse disposal,
• retailing food and supplies, etc.

“Providing services such as these may change the principal purpose of the business from a property rental to providing services,” says CRA. “Generally speaking, the more services provided, and the greater the importance of the additional services to the financial success of the business, the greater the likelihood that the corporation may be eligible for the small business deduction.”

Read: Finance offers scant tax relief to business owners

If your clients operate campgrounds, tell them the good news.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.