ARCHIVED - Separate businesses
DATE: October 29, 1979
SUBJECT: INCOME TAX ACT
REFERENCE: Section 3 (also sections 14 and 128, subsection 111(5); and Regulations 1101(1) and 2605)
This bulletin replaces and cancels Interpretation Bulletin No. IT-206 dated April 14, 1975. Current revisions are designated by vertical lines.
Notice to the reader:
1. The question of whether a taxpayer is conducting one business or more than one in a taxation year can arise when more than one business operation is carried on simultaneously or one business operation succeeds another. It can be of importance, for example, where
(a) a taxpayer has made a disposition of property and will recapture capital cost allowance if that and other similar property that he owns are in separate classes because they are used in separate businesses as referred to in Regulation 1101(1);
(b) a taxpayer is computing cumulative eligible capital and eligible capital amounts under section 14 for each of his separate businesses;
(c) an individual is allocating the income of each of his separate businesses to the provinces where it was earned, pursuant to Regulation 2605;
(d) control of a corporation has changed and the provisions of subsection 111(5) must be considered in respect of its non-capital losses or, for 1983 and subsequent taxation years, its farm losses.
Simultaneous Business Operations
2. Whether the carrying on of two or more simultaneous business operations by a taxpayer is the same business is dependent upon the degree of interconnection, interlacing or interdependence and the extent of the unity embracing the business operations. The fact that the business operations of a taxpayer are of different natures, for example manufacturing and selling, does not preclude them from being the same business if there is a sufficient interconnection, interlacing or interdependence between the operations.
3. When determining the degree of interconnection, interlacing, or interdependence between simultaneous business operations, factors to be considered could include, but are not to be restricted to, the following:
(a) The extent to which the two operations have common factors that may be pertinent. For example do the two operations have the same: processes, products, customers, services offered to customers, types of inventories, employees, machinery and equipment.
(b) Whether the operations are carried on in the same premises. For example, if a hardware store and a sporting goods store are operated in two distinct locations, it is possible that they should be looked upon as separate businesses, but if they are in one store, it is almost certain that they are one business.
(c) One operation may exist primarily to supply the other. An example of this might be the carrying on of market-garden operations chiefly for the purpose of supplying a hotel with fresh produce; in these circumstances, the two operations likely should be regarded as one business, even if a small amount of the market-garden produce is sold elsewhere.
(d) Whether the operations have differing fiscal year-ends.
(e) Whether the taxpayer's accounting system records the transactions of both operations as if they were those of one business, or whether separate complete sets of records are maintained throughout the year; if the latter, too much weight should not be given to the possible merging of the results into one statement at the year-end for tax and other reporting purposes.
Successive Business Operations
4. Where one business operation succeeds another the following comments may be of assistance in determining if the two businesses are the same business:
(a) where the succeeding business operation is not the same kind as the former, the two operations will be viewed as different businesses at the different times and no other factors will operate to change that view;
(b) where a business operation ceases or is disposed of and following this the same taxpayer acquires another business operation of the same kind, the two business operations will normally be considered to be the same business if the second business operation is purchased on or around the same time that the first operation is disposed of or it can be established that a second operation was contemplated at the time of disposition of the first operation;
(c) where the succeeding business operation of a corporation is of the same kind, but ownership of the corporation has changed, the two operations will normally not be considered the same business if the first business ceases operation before the second operation begins. Whether a business ceases is dependent upon factors such as the following:
(i) the sale of all inventory,
(ii) dismissal of all employees,
(iii) vacation of business premises.
The sale of all fixed assets of a business is not considered a mandatory requirement for the ceasing of a business if it can otherwise be established to have ceased.
5. When determining whether business operations are of the same kind, the principal factor to be considered is the type of business that a taxpayer is in. It is not essential that the same inventory or machinery and equipment be used in the two operations. Factors, such as a change in name or a change in location of a business are not, in themselves, material when determining whether business operations are the same kind. Comprehensive rules on when business operations are of the same kind are not possible, but the following are examples:
(a) the operation of hotels, motels and lodging houses, even though the facilities and services offered may vary widely;
(b) the operation of retail drug stores, whether or not each has a prescription service, a lunch counter, or an extended line of non-drug goods;
(c) those activities that come within the definition of "farming" in subsection 248(1) even though they are dissimilar or are conducted in different places;
(d) those activities that come within the definition of "fishing" in subsection 248(1) even though they may be conducted seasonally at widely separated fishing grounds.
6. The same business continues to exist at the time when a corporation or an individual becomes bankrupt. However, any loss of such a corporation or individual for any taxation year preceding that in which an absolute order of discharge is granted is not deductible under section 111 in computing taxable income for the taxation year in which the order was granted or any subsequent year (paragraphs 128(1)(g) and 128(2)(g)).
7. The same business continues to exist when an interim receiver operates it.
8. Where a receiver or a receiver and manager is appointed by a Court or by agreement, it is considered that he is carrying on the same business formerly carried on by the owner unless the facts indicate otherwise.
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