Interest from a corporation's actively managed short-term securities portfolio constitutes active business income.
The corporate taxpayer was forced to sell its broadcasting division and invested the proceeds in short-term securities while seeking a new business to purchase.
The taxpayer actively managed this investment portfolio and claimed the interest earned as income from an active business to calculate its Canadian manufacturing and processing profits deduction.
The Minister reassessed the income as property income.
The Supreme Court of Canada allowed the taxpayer's appeal, applying a rebuttable presumption that income earned by a corporation in pursuit of its corporate objects is business income, and finding that the taxpayer's extensive investment activities constituted an active business.
Interest from foreign currency deposits required to do business abroad is not foreign investment income.
The appellant corporation financed a plant in the Philippines using foreign currency to comply with Philippine law.
To minimize risks of devaluation and currency controls, the appellant made U.S. dollar deposits with commercial banks, which then made peso loans to the appellant's Philippine branch.
The appellant claimed a dividend refund under the Income Tax Act, including the interest from the U.S. dollar deposits as 'foreign investment income'.
The Minister reassessed the return, characterizing the interest as income from property used or held in the course of carrying on a business.
The Supreme Court of Canada dismissed the appeal, holding that the property was employed and risked in the taxpayer's business to fulfill a mandatory condition precedent to trade, and thus was not foreign investment income.
