The small business deduction allows low-rate tax for small business corporations. Because it’s designed to encourage small businesses, it’s not allowed to passive investment corporations, which earn rental or investment income from property, unless those businesses employ more than 5 full-time employees.
Justice Miller decided that a corporation that rented storage space was a “specified investment business” and, so, not entitled to the small business tax rate deduction, even though the owner claimed it offered other services as part of the rental package. J. Miller decided that a hotel or motel qualify as businesses offering services, not property (i.e., not just a room). But a renter of storage space is offering property not a service.
“[15] … ’25. The definition of “specified investment business” does not ask about the general nature of the business of a corporation, or the degree of activity or passivity actually required by that business. Rather, it asks about the legal character of the income that the business is intended principally to earn. If on the relevant date the legal character of that income is rent, for example, then the business meets the definition unless one of the statutory exceptions applies (none of those exceptions is relevant in this case).'”
“[18] The Appellant’s position appears to be that it is unnecessary to address the principal purpose test as in this case the income is simply not rent. Yet, I take this as a confirmation there was only the one business. If one took away the storage units there would be no business, whereas one could take away many of the other services and there would still be a storage business. Putting goods into storage and paying for that, regardless of what you label the income, is income from property. …”
“[29] There is a tipping point where the provision of services overcomes the provision of property. The CRA have administratively determined that hotel/motel accommodation steps over that tipping point. I conclude that R-Xtra Co. does not: a few services to a few customers does not change the inherent nature of income from property.
“[30] In summary, all of R-Xtra Co.’s customers were buying storage space: that is what they paid for. Mr. Claeys provided services that anyone acquiring storage space would expect. He did also, however, go the extra mile and provide additional services, though [he] has not provided sufficient evidence to in any way quantify the level of such customer service. Not every customer got loading, unloading, shuttle service or relocation advice for example. Every customer got top quality storage space. R-Xtra Co. carried on a business, the principal purpose of which was to derive income from renting storage space and that is deriving income from property.”