BUSINESS

Author: François Auger

TABLE OF CONTENTS

Although there is a definition of "business" in the Income Tax Act (section 248(1)) and
other tax laws, is it enough to dissociate federal law from the civil law of Quebec?
INTRODUCTION
1 DEFINITION
1.1 ANALYSIS OF THE CONCEPT OF ENTERPRISE IN QUEBEC CIVIL LAW (SINCE THE COMING INTO FORCE OF THE CIVIL CODE OF QUÉBEC)
1.1.1 THE LAW
1.1.2 JURISPRUDENCE
1.2 ANALYSIS OF THE CONCEPT UNDER THE COMMON LAW
1.3 ANALYSIS OF THE CONCEPT UNDER THE INCOME TAX ACT
1.3.1 DISTINCTION BETWEEN THE "CARRYING ON OF A BUSINESS" AND AN "ADVENTURE IN THE NATURE OF TRADE"
1.3.2 ACTIVE BUSINESS
1.3.3 REASONABLE EXPECTATION OF PROFIT
1.4 FEDERAL ADMINISTRATIVE POSITION
1.5 OTHER TAX LEGISLATION
2 DIFFERENCE BETWEEN THE CONCEPT IN TAX LAW AND IN CIVIL LAW: DISSOCIATION BETWEEN THE TWO CONCEPTS
3 OUR RECOMMENDATIONS
BIBLIOGRAPHY
Although there is a definition of "business" in the Income Tax Act (section 248(1)) and other tax laws, is it enough to dissociate federal law from the civil law of Quebec?

INTRODUCTION
The Income Tax Act[1] provides that income is calculated depending on the source from which
it arises. The sources specifically named in the I.T.A. are income from an office, employment,
business, property and capital gains. Inherent to the concept of business income is the idea of
activity, whereas the notion of income from property is associated to passivity. The concepts of
business and the carrying on of a business developed in tax law are related to the notion of
business income and allow a distinction to be made between income from property, which is
passive income, and income from an active business. This concept is used in several situations,
particularly when distinguishing between the carrying on of a business and an adventure or
concern in the nature of trade, determining whether a business is an active business, whether
there is a reasonable expectation of profit and whether a business is operated continuously. In
Quebec, the coming into force of the Civil Code of Québec[2] gave new spirit to the notion of
enterprise by defining what the carrying on of an enterprise is. It is common knowledge that the
legislator was inspired to a great extent by French doctrine, as well as by the rules developed in
tax law, in formulating the provisions of the C.C.Q. regarding the carrying on of an enterprise.
The first part of this review consists in an analysis of the principles applicable to the notion of
the carrying on of an enterprise in Quebec civil law. We will also analyse the concept of
business under common law as well as under tax law.
In the second part we will examine the differences between the concept of business in tax law
and enterprise in civil law. We will conclude that there is a dissociation between tax law and
civil law. Finally, in the third part we will set forth our recommendations based on our findings.
1 DEFINITION
1.1 ANALYSIS OF THE CONCEPT OF ENTERPRISE IN QUEBEC CIVIL
LAW (UNDER THE CIVIL CODE OF QUÉBEC)
1.1.1 THE LAW
For almost 125 years, the Civil Code of Lower Canada (hereafter "C.C.L.C.") was based on
the notions of commerce, commercial transactions and merchants. In 1994, the C.C.Q. swept
away that way of thinking to replace it with the notion of enterprise.[3] Just as in French civil
law[4], the Quebec legislator did not consider it advisable to define the term "enterprise",
providing instead a definition of the carrying on of an enterprise.
The definition is found in article 1525 paragraph 3 C.C.Q., which reads as follows:
The carrying on by one or more persons of an organized economic activity, whether or not it is
commercial in nature, consisting of producing, administering or alienating property, or providing
a service, constitutes the carrying on of an enterprise.
According to the Commentaires du ministre[5], the notion of enterprise includes all activities,
whether commercial or not, notably the exercise of a profession, trade or agricultural activity or
based on a co-operative effort.
The definition of the carrying on of an enterprise is very similar to that established by the French
courts as well as by French doctrine. The following texts which refer to the notion of enterprise
or that of the carrying on of an enterprise allow us to better define the notion being examined
under Quebec law. First, the Cour d'appel de Paris made the following comments with
respect to the notion of enterprise:
[Translation] Considering that, if a firm of notaries, due to its size, could be held to constitute an
"enterprise" within the economic meaning of the term, namely the coming together in a single
space of the material and human means co-ordinated and organized with a view to attaining a
specific objective.[6]
In recent texts, French authors state the following:
[Translation] The notion of enterprise was developed in particular by Escarra. According to
him, commerce is characterized by external facts evidencing that an individual conducts
commercial transactions not on an occasional basis but regularly, according to a specific plan
and involving an activity requiring physical facilities of some size. In short, an enterprise is the
repetition of commercial transactions, based on a previously established organization…[7]
Finally, in the treatise Cours de droit commercial, we read the following with respect to the
definition of enterprise:
[Translation] In its broadest sense, we can say that an enterprise constitutes an ensemble of
human and material means of producing and distributing wealth.
Enterprise is thus defined as an economic and social unit within society. It is, it has been said,
the basic cell of economic and social organization. However, although enterprise is
economically and socially recognized, in France it is still not a specific legal concept. In
commercial law it is not a legal universality or a subject of law with juridical personality and an
autonomous patrimony. It must be distinguished from other groups with which it could be
confused: establishment, branch, subsidiary and "fonds de commerce".[8]
In reading these comments and article 1525 paragraph 3 C.C.Q., we see the influence of the
French definitions based on the notion of economic organization with a specific purpose. It is
therefore useful to re-examine the definition contained in the C.C.Q. and analyse the following
elements: activity, organized activity and economic activity.
An enterprise is an activity. In everyday language, the word "enterprise" is often used to
designate the person who runs the enterprise. In Quebec civil law, enterprise certainly does not
refer to the entrepreneur, but to his activity. That activity must be organized. The C.C.Q. does
not say what degree of organization is required, but, according to certain authors[9],
organization will generally include three separate elements: the human element, the material
element and the organization.[10]
The human element refers to the entrepreneur, necessary for the creation of a business, and his
staff who may be used to run the enterprise, which arises out of the will and actions of the
entrepreneur. An entrepreneur may be an individual, partnership, company or association.[11]
Also, there is nothing to prevent one person from participating in several enterprises
simultaneously.
A partnership in and of itself cannot be considered an enterprise. Rather, it owns the business.
A partnership, as a contract entered into between parties, does not form an enterprise. The
contract gives rise to a legal entity. This legal entity is not an enterprise. Once it carries on an
activity for business purposes, the activity becomes an enterprise.
Note that article 2186 of the C.C.Q. implies that the activities of a partnership, for example,
could be something other than the carrying on of an enterprise.
A contract of partnership is a contract by which the parties, in a spirit of co-operation, agree to
carry on an activity, including the operation of an enterprise, to contribute thereto by combining
property, knowledge or activities and to share any resulting pecuniary profits.
The adoption of this article goes against the doctrine[12] established under the C.C.L.C. The
existence of a partnership does not necessarily imply that an enterprise exists. In the
Commentaires du ministre[13], the following example was suggested: [Translation ] "[…]
certain groups constitute true partnerships, without necessarily carrying on an enterprise, such as
investment groups[14] . Before the adoption of the C.C.Q., one might have thought the
opposite was true. It appears that in such a case the degree of activity and organization is not
sufficient to call it an enterprise.[15] The purpose of this type of economic activity may be the
realization of a pecuniary gain for its authors, without constituting the carrying on of an
enterprise. Finally, we must distinguish between the carrying on of an enterprise and an
investment activity, which recalls the distinction between "business income" and "property
income" in tax law.[16]
The notion of enterprise requires a certain degree of physical organization. We could say that
an enterprise cannot exist without certain property being allocated for a specific purpose. That
property constitutes the foundation of the enterprise and generally may be the object of a sale of
an enterprise within the meaning of articles 1767 and following of the C.C.Q.. As for a
partnership which does not carry on a enterprise, it would not have any physical organization.
However, a partnership which allocates a certain amount of tangible assets to its activities could
be considered to carry on an enterprise. The main criteria allowing one to distinguish, for
example, between a simple investment, such as an investment in immovable property, and a real
estate investor is the latter’s organization.
By organization, we do not mean so much the fact that there is a structure but the existence of
the will to use property or persons in the pursuit of a particular purpose. Thus it cannot simply
result from chance. The economic activity must be part of a business objective predetermined
by an entrepreneur. The purpose of an enterprise does not have to be commercial in nature, as
indicated in article 1525 paragraph 3 C.C.Q..[17] Organization also indicates that in general,
an enterprise involves a certain continuity over time and that it is a repetitive activity, or at least,
it is intended to be one. It has been recognized that a person who limits himself to occasional or
isolated acts does not carry on an enterprise.[18]
The enterprise is an economic activity which consists of the production or supply of goods or
services. An enterprise may be civil or commercial in nature. It may consist of a traditional
business activity, a co-operative activity, the exercise of a profession, trade or agricultural
activity, or the activity of a non-profit organization, but it must have a business nature[19]. On
the other hand, an activity carried on for social or public purposes rather than business ones,
such as the activity of a government, municipality or church, does not constitute an enterprise,
nor does an activity carried on for spiritual, charitable or benevolent purposes.[20]
The author Dalphond[21] is of the opinion that, for there to be an economic activity, there must
be two types of participants between whom there are exchanges which are primarily governed
by the law of the market. The carrying on of an enterprise implies an active role on the part of
the entrepreneur. The economic benefit which he receives is attributable to his efforts to attract
clients, create goodwill or take advantage of the market. On the contrary, someone who invests
cannot be said to earn income as a result of his efforts. An investor’s passivity is connected to
the fact that his economic well-being does not require that he participate in exchanges of
financial value. However, a person who carries on an enterprise, such as a merchant, has to
take the necessary steps for there to be exchanges between himself and consumers.
The following elements are required to find that an enterprise exists in Quebec civil law:
[Translation]
1) Necessarily, a plan specifying the business goals of the enterprise around which the
activity is organized (which does not have to be complex or even written);
2) Necessarily, assets related to the pursuit of the goals (which may range from a large
corporation’s staff, tools, equipment and buildings of a large corporation to the simple toolbox
of a tradesman);
3) Necessarily, a series of habitual and normal juridical acts involving an entrepreneur
performed in the pursuit of predetermined goals;
4) Necessarily, other business participants to receive the goods or services offered by the
enterprise, generally defined as clientele, goodwill or the market; and
5) the presence of a financial value or benefit directly attributable to the efforts of the
entrepreneur.[22]
Finally, it should be noted that the legislator has voluntarily broadened the notion of enterprise
beyond the definitions found in dictionaries or encyclopedias.[23] For example, we read that an
enterprise may or may not be commercial in nature and that it is not limited to the production of
goods or services, since it also covers the administration and alienation of property. The
legislator has thus attempted to cover all forms of economic activity. The text by Jean Pineau
concludes by providing us with a complete summary of the new changes:
[Translation] The difference between the former law and the new law, as mentioned above,
consists of broadening the rule which only covered business activities to include obligations
undertaken "for the service or operation of a business", whether commercial or otherwise; the
notion of commerce is henceforth replaced by the broader notion of enterprise, defined in the
third paragraph of article 1525 […] This definition, which is taken from the teachings of the
doctrine and case law, is found here, for the lack of a better place elsewhere in the Code, and
should help "clear up any uncertainties as to the scope of the notion of enterprise while allowing,
because of the generality of the terms used, the law on this matter to evolve".[24]
1.1.2 JURISPRUDENCE
Few decisions have been rendered on the actual definition of the carrying on of an enterprise.
In general, the interpretation of article 1525 paragraph 3 C.C.Q. does not give rise to problems
and seems to be adapting to the current business world. We did not find any decisions involving
investment activity, but several dealt with the distinction between the notion of the carrying on of
an enterprise and the personal exercise of a professional activity in a bankruptcy and insolvency
context.[25] In this case, article 1525 paragraph 3 C.C.Q. must be read in conjunction with
articles 2648 C.C.Q.[26] and article 552 paragraph 3 of the Code of Civil Procedure[27].
In the Landry[28] case, the issue was whether the automobile of an independent worker should
form part of the bankrupt’s estate. The debtor was an insurance broker and was self-
employed. He did not have any partners and was remunerated through commissions on the
insurance policies he sold for various insurance companies, of which he was not considered an
employee. The Court held that the debtor carried on an enterprise pursuant to article 1525
paragraph 3 C.C.Q. since he exercised an organized economic activity, commercial in nature,
for the purpose of providing a service. Article 552 paragraph 3 of the C.C.P. says that
instruments of work needed for the personal exercise of a professional activity are exempt from
seizure. That article should be read in conjunction with article 2648 C.C.Q.. The
Commentaires du ministre[29] state that the instruments referred to are the ones which allow
a person to exercise his profession regardless of any notion of carrying on an enterprise. The
concept of the "personal exercise of his professional activity" is thus opposed to the notion of
"carrying on a business". Accordingly, as the judge held that the debtor’s automobile was used
to carry on his enterprise, the car should form part of the bankrupt’s property.
Later, the Quebec Court of Appeal decision in Gibbons v. Wawanesa[30] clarified the scope
of the Commentaires du ministre[31]. The Court held as follows:
[Translation] We are of the view that the Minister’s comments emphasize the distinction
between the personal use of property and its use by a business. In this case, the appellant is a
taxi-driver and the owner of the vehicle he uses to earn his living. He works for himself within a
co-op. He keeps all the money he earns, from which he deducts the call distribution fees and
rent for the taxi stand. Of course, he must respect certain rules applicable to the members and
users of the co-op regarding the length of work shifts and the distribution of calls, but that does
not affect his status as an independent worker who uses his automobile as an instrument needed
for the personal exercise of his professional activity within the meaning of the exception in article
552 C.C.P. Use of the services of the co-op does not transform the personal exercise of his
profession into the carrying on of an enterprise.[32]
In Girouard v. Rankin[33], Boyer J. warned against generally concluding that proof of the
carrying on of a business opens the door to seizure of all a debtor’s property in every case. In
his opinion, the essential criteria set forth in article 1525 paragraph 3 C.C.Q. regarding the
carrying on of an enterprise is that there be an organized economic activity. Accordingly, along
with regular activities there should be human resources, material means and a specific economic
goal. It was held that professional, trade and agricultural activities can generally form part of the
concept of business. Finally, according to the judge, the presence of a joint venture excludes
the notion of the personal use of property, even if it is used for a professional activity.[34]
In Belinco Développement inc. v. Bazinet[35], Mr. Bazinet had asked Belinco
Développement inc. to renovate his building. While the work was being performed, Mr.
Bazinet asked for several changes to the agreed-upon work. Mr. Bazinet then left on a trip and
his tenants objected to Belinco Développement inc. completing the interior work. In addition,
Mr. Bazinet had not paid for all the work Belinco Développement inc. had performed. Mr.
Bazinet had to hire a third party to finish the work. Belinco Développement inc. registered a
notice of legal hypothec against the building and then published a prior notice in the form of a
motion for surrender, asking for permission to sell Bazinet’s building itself. Mr. Bazinet began
by opposing himself to the prior notice, arguing that there was an irregularity in the registration of
the legal hypothec. He then opposed to the company selling his building under article 2784
C.C.Q. as the property of an enterprise. Bazinet claimed that he did not carry on an enterprise.
The Court conducted a very detailed analysis of the doctrine on the notion of business and
referred to the authors cited in our analysis. The Court said that it agreed with their comments.
Julien J. stated the following:
[Translation] The legislator certainly wanted to extend the notion of enterprise beyond the
commercial nature of an economic activity. However, we must be careful not to bring into the
interpretation of article 1525 C.C.Q. definitions borrowed from specific statutes. In those
cases, the definition used is focussed on the purpose of the statute and will be more or less
broad depending on the legislator’s intentions. Furthermore, the jurisprudential interpretation
proposed with respect to those particular statutes takes into consideration the goal sought by
the legislator.[36]
Finally, the judge held that the building itself was an asset which was used in connection with an
enterprise. Mr. Bazinet performed repeated, frequent and usual acts for the purpose of
maximizing his rental income, such as signing leases, collecting rent, entering into renovation
contracts and using staff. His tenants were his clientele and he received an economic benefit
from his efforts. He therefore carried on an enterprise.
1.2 ANALYSIS OF THE CONCEPT UNDER THE COMMON LAW
In common law, the concept of business implies a certain commercial activity. That activity
must be organized. It is established to carry out a particular project, produce a certain product
or provide a service to the public.[37] The notion of business in common law is similar to that
found in the civil law as described above. As a result, the leasing of immovables, for example, is
not considered a business.[38]
In the Martin[39] case, O'Connor J. of the Exchequer Court said the following with respect to
the notion of business in common law:
A landowner in dealing with his own land and granting leases thereof and so receiving rents and
profit is not carrying on business. But the question here is has the appellant reached the point
where land ownership has passed into commercial enterprise in land.[40]
The comment of Monet J. in the No. 249 case[41] is also interesting. The issue in that case was
whether the administration of buildings constituted a business within the meaning of the I.T.A..
Monet J. based himself on both civil law and common law in his analysis: "I do not believe I am
wrong in stating that under common law as under civil law a contract for the leasing of real
property will become a commercial contract only if the property is incidental to a commercial
activity".
In the De Villard[42] decision, Tremblay J. also examined the concept of business. After
stating the definition found in tax law, the judge, on page 1050, examined the ordinary meaning
of the term "business":
Enterprise: "mise à exécution d'un projet" (Petit Larousse Illustré 1973, p. 380).
Enterprise: "Ce qu'on se propose d'entreprendre: mise à exécution de ce dessein"
"Organisation de production de biens ou de services à caractère commercial, voir affaire" (Le
Robert 1971, Vol. 2, pp. 554, 555).
Affaire: "L'activité économique et plus particulièrement commerciale"
And we might also cite the definition given by the author of the dictionary:
"Les Affaires? C'est bien simple, c'est l'argent des autres." Dumas Fils, La question d'argent II,
7. (Le Robert 1971, Vol. 1, p. 61).
Business: "Commercial activity engaged in as a means of livelihood -- Activities of a person,
partnership or corporation involved in commerce, manufacturing or performing a service;" (The
Living Webster Encyclopedic Dictionary of the English language, 1972, 1971, p. 134).
Business: "2. econ. The purchase and sale of goods in an attempt to make a profit.
3. com. A person, partnership, or corporation engaged in commerce, manufacturing, or a
service; profit-seeking enterprise or concern." (The Random House Dictionary of the English
Language, the unabridged edition 1971, p. 201).
As these definitions are obviously very general, the judge then examined the jurisprudence
relating to the notion of business. On page 1051 he stated the following:
In one of the most recent judicial decisions, that of Walsh J. of the Federal Court (MRT
Investments Ltd. et al. v. The Queen, 75 DTC 5224 ff., (1975) CTC 354), the problem is
referred to once again: a decision going back to 1907, which cites a decision of 1880, is cited:
The word "business" was defined by Osler J.A. in the case of The Rideau Club v. The
Corporation of the City of Ottawa (1907) O.L.R. 118, where he states at page 122:
"Business" is a word of large and indefinite import, but (as used in the section) its evident and
reasonable meaning is (to adopt the language of the Master of the Rolls in Smith v. Anderson,
15 Ch. D. 247, at p. 258) something which is followed and which occupies time and attention
and labour for profit.
He then held that the notion of business in common law mainly includes the following points:
(1) time, attention and labour;
(2) the purpose of profit;
(3) the incurring of liabilities to other persons.[43]
In general, a business purchases, produces or sells property, hires employees, obtains permits
and generally carries on its business through contracts. In addition, a business is defined based
on the type of entity to which it belongs and by the activities it carries on.
A sole proprietorship is the most simple form of business. The entity exists from the moment an
individual begins to operate a business on his own without adopting a particular form with
respect to the organization of his business, such as a corporation.
The main advantage of this form of business is that it is as easy to create as it is to dissolve. The
sole proprietor only has to cease all form of activity for the business to end. However, there are
certain disadvantages to this form of entity, notably the fact that the sole proprietor has unlimited
liability towards third parties. In addition, there is no rebuttable presumption that sole
proprietorships carry on a business, as for corporations.
A corporation is one of the most widely used forms of association. It constitutes a legal entity
separate from its shareholders[44], who are not held personally liable for the corporation’s
debts and obligations. The entity may carry on a business, own property and rights and incur
liabilities. It has perpetual existence, subject to the requirements of the incorporating statute
relating to the maintenance of its existence, and it is not affected by the death of its shareholders.
In both English[45] and Canadian jurisprudence, there is a presumption that a business is
carried on where an activity is mentioned in a company’s articles and the company in fact
carries on that activity.[46] In Canadian Marconi[47], Wilson J. gives a few examples of
where this presumption was applied.
The presumption was applied again for the purpose of distinguishing between business and other
income in Commissioners of Inland Revenue v. Korean Syndicate, Ltd. (1921), 12 T.C.
181 (C.A.). The Court of Appeal considered that the fact that the taxpayer was a company in
existence for some particular purpose "is a matter to be considered when you come to decide
whether doing that is carrying on a business or not" (at p. 202). […]
In Canada, the presumption was employed by Duff J. (as he then was) in the case of Anderson
Logging Co. v. The King, [1925] S.C.R. 45. Duff J., in a passage often cited by subsequent
authority, said at p. 56:
The sole raison d'être of a public company is to have a business and to carry it on. If the
transaction in question belongs to a class of profit making operations contemplated by the
memorandum of association, prima facie, at all events, the profit derived from it is a profit
derived from the business of the company.[48]
Partnership is also a widely-used legal form in the common law provinces. Note that the
partnership is a creation of the English courts which was later codified in the Partnership Act of
1890[49]. The Ontario Partnership Act[50] defines partnership as: "the relation that subsists
between persons carrying on a business in common with a view to profit"[51]. Similar
definitions are generally found in the laws of the other common law provinces[52] and refer to
three essential ingredients: (1) a business (2) carried on in common (3) with a view to
profit.[53] The existence of a partnership is in this matter subject to the facts and circumstances
of each case. To determine whether a partnership exists, we must take account of the contract
and the true intention of the parties as witnessed by all the facts.[54]
The Partnership Act does not provide the criteria to be used to determine whether a
partnership exists. However, the courts have held that the following factors indicate the
existence of a partnership:
The indicia of a partnership include the contribution by the parties of money, property, effort,
knowledge, skill or other assets to a common undertaking, a joint property interest in the
subject-matter of the adventure, the sharing of profits and losses, a mutual right of control or
management of the enterprise, the filing of income tax returns as a partnership and joint bank
accounts.[55]
In decision No. 249[56] at page 245, Monet J. notes that the I.T.A. does not contain a
definition of "business" and adds the following:
In order to have a definition of it, reference must therefore be made to the general law. In
Pszon, (1946) 2 D.L.R. 507, page 511, Mr. Justice Laidlaw stated:
The word "business" is of wider import than "trade": In Re a Debtor, (1927) 1 Ch. 97 at 105.
As used in various statutes it involves at least three elements: (1) the occupation of time,
attention and labour; (2) the incurring of liabilities to other persons; and (3) the purpose of a
livelihood or profit. A person who devotes no time or attention or labour, by himself or by
servants or employees, to the working or conduct of the affairs of an enterprise does not carry
on the business of such enterprise. He might, for instance, be only financially interested. But to
carry on business he must give attentions, or perform labour, for the maintenance or furtherance
of the undertaking, and devote time to the accomplishment of its objects. He must also be in
such relation to the public that he may be held liable to others. The liabilities must be such as to
be referable to the carrying on of the enterprise. Obligations assumed in connection with and
for the purpose only of betterment of property owned by a man do not necessarily constitute
him a person who carries on business. Finally, it is an essential element of carrying on business
that the purpose of the engagement is for a livelihood or profit. If an enterprise is not conducted
as a means to accomplish that object it does not come within the ordinary meaning of the term
"business".
1.3 ANALYSIS OF THE CONCEPT UNDER THE INCOME TAX ACT
The concept of business is "defined" in subsection 248(1) I.T.A. and reads as follows:
"business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever
and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and
paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an
office or employment.
As mentioned in the De Villard[57] decision, the I.T.A. does not say what business means but
what business includes. We therefore understand that, in addition to including sales and
purchases, the carrying on of a business includes manufacturing, farming and mining operations,
the provision of services, whether public or not, a profession, calling, trade or any type of
commerce, provided those activities are not exercised as part of an office or employment or we
are not dealing with the disposal of property in connection with an isolated transaction. Finally,
note that, although the definition of business covers an adventure in the nature of trade, the
meaning of carrying on a business is not limited to traditional business practices.[58]
To define the scope of "business" under the I.T.A., we must analyse certain concepts that have
become related to it, either by legislative addition or developed through the case law. We note
that case law development has been strongly influenced by borrowings from the common law.
1.3.1 DISTINCTION BETWEEN "CARRYING ON OF A
BUSINESS" AND AN "ADVENTURE IN THE NATURE OF
TRADE"
The profits resulting from an adventure in the nature of trade are considered to be business
income pursuant to the definition of business in subsection 248(1) I.T.A. Thus, an adventure in
the nature of trade may produce business income from a tax point of view despite the absence
of the carrying on of a business according to civil law principles.
One of the first decisions on the concept of an adventure in the nature of trade was the
Taylor[59] case. In that case, the taxpayer was the general manager of the Canadian
subsidiary of a U.S. company. His income was mainly employment income. It was determined
that he was involved in an adventure in the nature of trade when he personally purchased and
sold a large quantity of lead. The resulting profit was assessed as income from a business.
Taylor argued that it could not be income from a business because he did not carry on a
business and had made a profit from an isolated trading venture. The Court held that:
It is, I think, plain from the wording of the Canadian Act, quite apart from any judicial
decisions, that the terms "trade" and "adventure or concern in the nature of trade" are not
synonymous expressions and it follows that the profit from a transaction may be income from a
business within the meaning of section 3 of the Act, by reason of the definition of business in
section 127(1)e), even although the transaction did not constitute a trade, provided that it was
an adventure or concern in the nature of trade.[60]
It was held that Taylor had earned business income, which did not mean that he had carried on
a business.
Another frequently cited decision is Tara Exploration[61]. In that case, Jackett J. said:
The adventure in the nature of trade by which the appellant made the profits in question did not
in itself constitute "carrying on business in Canada" within the ordinary meaning of the words
"carrying on business" and was not a part of a larger activity that falls within those words. It
was an isolated transaction and it was not a part of the "business" for which the appellant had
raised its capital or that it was actually carrying on.[62]
The judge held that the profits from the sale of shares resulted from an adventure in the nature of
trade but were not subject to tax under Part I of the I.T.A. since Tara Exploration was not a
corporation resident in Canada.[63]
In Birmount Holdings[64], the Federal Court of Appeal held that the profits resulted from an
adventure in the nature of trade and that it was not necessary to determine whether the taxpayer
carried on a business. Although that decision does not analyse what constitutes the carrying on
of a business as such, it does not rule out a finding that an adventure in the nature of trade
occurs when a business is carried on.
The question as to whether a business is or was being carried on must be solved as a question
of fact having regard to the circumstances of a particular case. The fact that, as distinguished
from an investment, certain activities have been found to constitute an adventure in the nature of
trade, does not, of itself, preclude a finding that those activities amount to carrying on in
business.[65]
In 1995 the Supreme Court rendered a major decision regarding the interpretation to be given
to the concept of business. In the Friesen[66] case, the issue was whether land held for the
purpose of reselling it in connection with an adventure in the nature of trade may be valued as
"inventory" under section 10(1) of the I.T.A.. Major J. reminds us that the word "business" as
defined in section 248(1) of the I.T.A. specifically includes an adventure in the nature of trade.
That expression is of course not defined in the I.T.A., but it has a meaning developed by the
common law.[67] After determining that Friesen met the common law tests of an adventure of
trade, it was held as follows:
The word "business" is defined in subsection 248(1) so as to include, inter alia, an adventure or
concern in the nature of trade. This definition can cause an isolated transaction involving real
estate to be considered a business transaction. As a business, any gain or loss which arises
therefrom is, by virtue of section 9, required to be included in computing income or loss, as the
case may be.[68]
Later, with respect to whether subsection 10(1)[69] is a codification of the common law, the
judge made the following remark:
The common law rule was restricted to stock-in-traders. Section 10(1) on the other hand
explicitly states that it applies to the inventory of a business. As discussed above, the word
business is defined in the Act and specifically includes adventures in the nature of trade. If
Parliament had wanted to simply codify the common law it could and would have used the term
"ordinary trading business" or "stock-in-trader" both of which had judicially established
definitions. Since Parliament chose to use the broader term "business", there is simply no basis
on which to assume that s. 10(1) was no more than a codification of a common law rule. To
place such a judicial limit on the clear and unambiguous wording of the statute is a usurpation of
the legislative function of Parliament.
The above quote gives an indication as to what interpretation should be given to the notion of
business. Thus, since the legislator chose not to codify the common law or the civil law, the
I.T.A. is dissociated from provincial private law. This issue will be discussed in further detail in
our analysis below.
In the Campbell[70] case, the taxpayer purchased bonds in the Saskatchewan
PotashCorporation and had borrowed at rates exceeding the anticipated yield. The transaction
was viewed as an adventure in the nature of trade and not an investment. The taxpayer’s loss
was fully deductible. Teskey J. restated the criteria set forth by Dubé J. in the Tamas case
under the heading "Speculation v. investment", where Dubé J. had written:
Several criteria are available to assist in the determination as to whether transactions are in the
nature of a speculation, or an investment. […] (1) The terms "trade" and "adventure or concern
in the nature of trade" are not synonymous expressions. A transaction which, by itself, does not
constitute a trade may still be an adventure in the nature of trade. (2) The question whether a
particular transaction is an adventure in the nature of trade depends on its character and
surrounding circumstances and no single criterion can be formulated. (3) If a person deals with
the property purchased in the same way that a regular trader in property of the same kind would
ordinarily do, such a dealing may fairly be called an adventure in the nature of trade. (4) The
nature and quantity of the subject matter of the transaction may be such as to exclude the
possibility that its sale was the realization of an investment or that it could have been disposed of
otherwise than as a trade transaction. (5) If the element of speculation is present, the sale of a
property that is productive of income and might be regarded as an investment, can be a trade in
the property rather than the realization of an investment. (6) The intention to resell at a profit
may well be an important factor in determining that a transaction is an adventure in the nature of
trade, but its presence is not an essential prerequisite to such a determination and its absence
does not negative the idea of an adventure in the nature of trade. The considerations prompting
the transaction may be of such a business nature as to invest it with the character of an
adventure in the nature of trade even if there is no intention of making profit on the sale of the
purchased commodity. (7) The fact that the transaction is totally different in nature from any of
the other activities of the taxpayer and that he was never entered upon a transaction of that kind
before or since does not, of itself, take it out of the category of being an adventure in the nature
of trade that an organization be set up to carry it into effect or that some operation be
performed on the subject matter of the transaction to make it saleable. [71]
We see from this analysis that income resulting from an adventure in the nature of trade will not
generally be treated as resulting from the carrying on of a business, notwithstanding the fact that
such income is considered to be business income.[72] The expression "adventure in the nature
of trade" is very broad, since it covers isolated activity as well as transactions which do not
constitute regular activity. We therefore note that there is a difference between the concept of
"adventure in the nature of trade" for tax purposes and that of the "carrying on of an enterprise"
within the meaning of the C.C.Q. and the common law, since there is an absence of an
organized and continuous activity in the first case. Therefore, if there is an adventure in the
nature of trade, that does not necessarily mean that an enterprise is in fact carried on within the
meaning of the C.C.Q. or the common law.
1.3.2 ACTIVE BUSINESS
The I.T.A. defines "active business carried on by a corporation" in the following terms: "any
business carried on by the corporation other than a specified investment business or a personal
services business and includes an adventure or concern in the nature of trade".[73] As
mentioned in greater detail above, the civil law also draws a distinction between the carrying on
of a business and an investment business.[74] However, an investment business will only
exceptionally be considered an enterprise in civil law. In tax law, subsection 125(7) of the
I.T.A. states that an investment business with more than five employees generates business
income.[75]
The I.T.A. draws a distinction between an active business carried on by a corporation and an
investment business because an active business carried on by a corporation excludes property
income, which in turn is defined to include income from an investment business. The primary
goal of an investment business is to earn property income.[76] With exceptions, a business
whose main purpose is to earn interest income, royalties, dividends, etc. will generally be
considered to be an investment business.
The determination of whether a business is an active business is a question of fact. Professor
Durnford points out that, depending on the nature of the business, the mere presence of a
sustained period of inactivity does not in and of itself mean that a business is not being carried
on.[77]
The Hickman Motors Ltd.[78] decision confirmed the principle that a business whose activities
are suspended or passive may nonetheless be considered an active business carried on by a
corporation.[79]
That principle was later confirmed in the Continental Bank Leasing Corp.[80] decision, where
the fact that no new business was created during the relevant period did not negate the effect of
the existing business.
However, where the operation of a business has been interrupted without hope of starting up
again, the taxpayer cannot consider himself to be carrying on a business for much longer and his
expenses will cease to be deductible.[81] Professor Durnford[82] also makes the following
comments:
The mere fulfilment of the formalities required to keep a company alive does not constitute the
carrying on of business by it.[83] On the other hand, a reduction in the scale of the business will
not necessarily signify that the business is no longer being carried on.[84] Moreover, since it is
part of a business of selling household goods to collect on the resulting accounts receivable, the
business is still being carried on even when goods are no longer being sold.[85] This assumes,
of course, that the accounts receivable are collectable in a worthwhile amount and that steps are
being taken to collect them.[86] It also assumes that the balance being collected does not arise
out of the single sale of the remaining assets of the business. It has, in addition, been held that
where a business is required to fulfil a term included in the contract for the disposal of its
remaining inventory of real estate (paving and curbing), fulfilling such a contractual requirement
does not constitute the carrying on by the taxpayer of its business (of land development).[87]
The distinction between income from property and business income has also been the object of
a major decision by the Supreme Court of Canada. In Canadian Marconi[88], Wilson J.
discussed the difficulty of distinguishing the two notions in tax law:
The distinction between income from a business and income from property is a difficult one to
draw but it is one which the Act compels us to make. There are two reasons for the difficulty.
First, the terms "business" and "property" are broadly and loosely defined in s. 248(1) of the
Income Tax Act. As a consequence the definitions on a fair reading can be construed in such a
way as to overlap. Second, persons or corporations generally engaged in trading-type activity
often use property as a means of earning income. On first reflection this sort of income could
realistically be considered either business income or property income. The observation of
Thurlow J. (as he then was) in Wertman v. Minister of National Revenue, 64 D.T.C. 5158
(Ex. Ct.), at p. 5167, that cases are "readily conceivable where particular income may be
accurately described as income from property and just as accurately regarded as income from a
business" is frequently apposite. The courts have handled the difficult task of deciding whether a
particular receipt is business income or property income by applying certain set criteria or
indicia of trading activity and, in the case of a corporate taxpayer, by applying a presumption in
favour of the characterization of its income as income from a business.[89] (emphasis added)
The Court recognized that both English and Canadian case law have held that there is in the
case of a corporate taxpayer a presumption that income received from or generated by an
activity carried out in pursuit of an object set out in the corporation's constating documents is
income from a business.[90] However, that presumption is rebuttable.
In the case of income from carrying on a business[91], the notion of adventure in the nature of
trade has been introduced. In the Ensite[92] case, Wilson J. stated that the test to distinguish
business income from property income is whether the property was used to fulfil a requirement
which had to be met in order to do business and not whether or not the taxpayer was forced to
use a particular property to do business. The case established that the threshold of the test is
met when the withdrawal of the property would have a decidedly destabilizing effect on the
corporate operations. The property must actually be employed and risked in the taxpayer's
business. The income must be derived from property necessary to the operation of the business
such as a company’s working capital.
But "risked" means more than a remote risk. A business purpose for the use of the property is
not enough. The threshold of the test is met when the withdrawal of the property would "have a
decidedly destabilizing effect on the corporate operations themselves": March Shipping Ltd. v.
Minister of National Revenue, supra, at p. 374. This would distinguish the investment of
profits from trade in order to achieve some collateral purpose such as the replacement of a
capital asset in the long term (see, for example, Bank Line Ltd. v. Commissioner of Inland
Revenue (1974), 49 T.C. 307 (Scot. Ct. of Session)) from an investment made in order to fulfil
a mandatory condition precedent to trade (see, for example, Liverpool and London and
Globe Insurance Co. v. Bennett, [1913] A.C. 610 (H.L.), and Owen v. Sassoon (1951), 32
T.C. 101 (Eng. H.C.J.) Only in the latter case would the withdrawal of the property from that
use significantly affect the operation of the business.[93]
The investment of profits from trade in order to achieve some collateral purpose is therefore
distinguishable from an investment made in order to fulfil a mandatory condition precedent to
trade.
The qualification of a taxpayer’s investment income derived from a short-term investment should
be examined in two steps. First, we must determine whether the taxpayer’s investment
constitutes an integral part of his activities. If so, the income from that investment is business
income. Second, if the answer to the first question is no, we must refer to subsection 125(7) of
the I.T.A. and see whether the taxpayer’s investment constitutes a business separate from his
principal activity. If it does, the income from that investment will also be considered business
income provided the conditions of subsection 125(7) of the I.T.A. are met, namely that the
company has more than five employees. What would have been considered passive income
becomes active income as a result of this provision. Otherwise, the income would have to be
qualified as income from property.
In civil law, investment activity does not constitute the carrying on of an enterprise because, in
the mind of the legislator, there is not a sufficient degree of organization to be able to call it an
enterprise.[94] Thus, whether the investment activity constitutes an integral part of the activities
of a partnership or a separate activity, we cannot conclude that an enterprise is carried on. In
the opinion of the author Goudreau, the principal distinction to be made remains the following:
[Translation] Henceforth, we will have to distinguish between the activity of a partnership and
the organized activity of a partnership, since certain transactions are not complex or refined
enough to constitute a business. In fact, one might ask whether the legislator has confused
material organization and enterprise; perhaps in the mind of the legislator, an investment
partnership does not carry on an enterprise because it does not have a sign on the street and a
large number of material goods available! The complexity and number of transactions entered
into by an investment group do not count when determining whether there is a business.[95]
1.3.3 REASONABLE EXPECTATION OF PROFIT
The reasonable expectation of profit test allows us to determine whether a taxpayer’s activity
constitutes a business or a hobby. There must be a reasonable hope of making a profit from a
business for a taxpayer to be able to deduct losses. The purpose of this test is to demonstrate
the reason for the existence of a business and it consists mainly in looking at the historical and
anticipated results of several years of operations and asking the following question: "will the
revenue of this operation ever be greater than its expenses, such that a profit will occur?"[96]
The first case dealing with reasonable expectation of profit was National Trust Co.[97] In that
case the Exchequer Court held that, in order to determine whether there was a reasonable
expectation of profit, the taxpayer’s motivation and behaviour should be examined and not the
results of his efforts.
Another important decision is Moldowan[98]. In that case, a businessman engaged in horse-
racing activities. At first he realized a profit but thereafter the taxpayer sustained losses, which
he deducted. The department disallowed the deduction. The Court held that the taxpayer only
spent a few hours carrying on that activity. He therefore could not have a reasonable
expectation of profit. The Court said the following:
Although originally disputed, it is now accepted that in order to have a "source of income" the
taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an
equivalent term to business […] See also s. 139(1)(a) of the Income Tax Act which includes as
"personal and living expenses" and therefore not deductible for tax purposes, the expenses of
properties maintained by the taxpayer for his own use and benefit, and not maintained in
connection with a business carried on for profit or with a reasonable expectation of profit. If the
taxpayer in operating his farm is merely indulging in a hobby, with no reasonable expectation of
profit, he is disentitled to claim any deduction at all in respect of expenses incurred.[99]
In the Sirois[100] and Landry[101] cases, the tax department wanted to apply the same test to
disallow the taxpayers’ deductions. In the Landry case, the taxpayer had returned to the
practice of law at the age of 71 after a 23-year absence from the profession. Décary J. began
his decision as follows:
[Translation] From the evidence presented, it is clear to me that the Appellant did not, on an
objective appreciation of the facts, have a reasonable expectation of profit in the two years in
question in light of the principles set forth by the Supreme Court of Canada in the famous case
William Moldowan v. The Queen, [77 D.T.C. 5213] […]
I fail to see why the criteria of reasonable expectation of profit would not apply to any
profession, whether liberal or not, or to any trade or business. In my view, the reasonable
expectation of profit is a criteria generally applied to any activity which could result in business
income. In fact, the courts have based themselves on this criteria in a variety of factual
situations.[102]
The Tonn[103] case marks a change in the application of the test of the reasonable expectation
of profit by adding an element of subjectivity to the test. In that case, the taxpayer had
purchased a property containing two residential rental units in August 1989. Part of the
purchase price was financed by an interest-free loan from another taxpayer and a further portion
was financed by a mortgage on Tonn’s own principal residence. During the 1989 to 1991
taxation years in issue, the hoped-for profits from rental revenues from the property did not
materialize. Refinancing was arranged by Tonn and his wife. The taxpayers deducted the
losses incurred for the years 1989, 1990 and 1991 years, but the Minister disallowed the
deduction.
The Federal Court of Appeal held that there was a reasonable expectation of profit. It analyzed
the jurisprudence, paying particular attention to the Moldowan[104] decision. Referring to the
provisions of the I.T.A., it held as follows:
[P]aragraph 18(1)a) is to be read in light of subsection 9(1). The paragraph 18(1)a) reference
to income must therefore be read as a reference to net income, or profit. Taken as such,
paragraph 18(1)a) sets out a deductibility test quite similar to that implicit in subsection 9(1).
[…] To be deductible according to paragraph 18(1)a), an expense must have been incurred
within the intention of producing profit. In other words, the expense must have been incurred
within a business framework, bearing some relation to the income earning process. I might
mention in this context that such intention, strictly speaking, is subjective; no requirement of
objective reasonability is expressly imposed by the section.[105]
Linden J., for the Federal Court of Appeal, situated the test described by Dickson J. in the
Moldowan[106] case as follows:
In addition to these overlapping legislative provisions, each of which outlines a deductibility test
applicable to the present circumstances, one must also consider the common law Moldowan
test, which requires a "reasonable expectation of profit".
He then added:
As a common law formulation respecting the purposes of the Act, the Moldowan test is ideally
suited to situations where a taxpayer is attempting to avoid tax liability by an inappropriate
structuring of his or her affairs.[107](emphasis added)
It should be noted that this test, which is inspired by the common law, does not have an
equivalent in Quebec civil law.
1.4 FEDERAL ADMINISTRATIVE POSITION
Interpretation Bulletin IT-364[108] sets forth the criteria to determine whether a business is
carried on and, in particular, when it can be said that it is actually carried on.[109] It is
important to determine when a business commences, especially with regards to the deductibility
of expenses incurred to earn business income.
Generally speaking, it is the Department's view that a business commences whenever some
significant activity is undertaken that is a regular part of the income-earning process in that type
of business or is an essential preliminary to normal operations. In order that there be a finding
that a business has commenced, it is necessary that there be a fairly specific concept of the type
of activity to be carried on and a sufficient organizational structure assembled to undertake at
least the essential preliminaries. This requirement is applicable whether the projected business is
intended to be a continuing one or is to be a single transaction in the form of an adventure in the
nature of trade.[110]
Interpretation Bulletin IT-459[111] states that when a person habitually does a thing that is
capable of producing a profit, then he is carrying on a trade or business[112], notwithstanding
that these activities may be quite separate and apart from his ordinary occupation.[113] Where
a person who undertakes an activity only infrequently, or possibly only once, rather than
habitually, it still is possible to hold that the person has engaged in a business transaction if, in
accordance with the definition of "business" in subsection 248(1), it can be shown that he has
engaged in "an adventure or concern in the nature of trade".[114] However, the expression
"adventure or concern in the nature of trade" does not necessarily indicate that a taxpayer
carries on a business within the usual meaning of the term.[115] The frequency of the activity
must be determined. In deciding whether a particular transaction is an adventure or concern in
the nature of trade, several tests must be applied as follows:
(a) whether the taxpayer dealt with the property acquired by him in the same way as a
dealer in such property ordinarily would deal with it;
(b) whether the nature and quantity of the property excludes the possibility that its sale was
the realization of an investment or was otherwise of a capital nature, or that it could have
disposed of other than in a transaction of a trading nature; and
(c) whether the taxpayer's intention, as established or deduced, is consistent with other
evidence pointing to a trading motivation.[116]
Interpretation Bulletin IT-73R5[117] states that income from property that is employed or
risked in a corporation's business operations is considered to be active business income. This
must be distinguished from income from property, which is not connected to or is necessary to
sustain a corporation's business operations. It is a question of fact whether a property is used
principally in an active business. Factors to be considered in determining whether a property is
used in an active business include the actual use to which the asset is put in the course of the
business, the nature of the business involved and the practice in the particular industry.[118]
The Department refers to the Ensite[119] decision, discussed above.
Furthermore, if a corporation is incorporated to earn income by doing business, there is a
general presumption that profits arising from its activities are derived from a business.[120]
However, in some circumstances, a corporation's entire profits can be characterized as income
from property, as might be the case where the corporation is formed for the sole purpose of
holding shares of a second corporation or holding a property to be rented with limited landlord
responsibilities.[121]
Finally, a temporary period of inactivity does not necessarily mean that a corporation has
ceased to carry on a business,[122] unless it is obvious that the corporation does not intend to
recommence its activities.
1.5 OTHER TAX LEGISLATION
The Excisetax Act.[123] gives the following definitions:
"Commercial activity" of a person means:
(a) a business carried on by the person (other than a business carried on without a
reasonable expectation of profit by an individual, a personal trust or a partnership, all of the
members of which are individuals), except to the extent to which the business involves the
making of exempt supplies by the person;
(b) an adventure or concern of the person in the nature of trade (other than an adventure
or concern engaged in without a reasonable expectation of profit by an individual, a personal
trust or a partnership, all of the members of which are individuals), except to the extent to which
the adventure or concern involves the making of exempt supplies by the person;
(c) the making of a supply (other than an exempt supply) by the person of real property of the
person, including anything done by the person in the course of or in connection with the making
of the supply. (emphasis added)
"Business" includes a profession, calling, trade, manufacture or undertaking of any kind
whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged
in on a regular or continuous basis that involves the supply of property by way of lease, licence
or similar arrangement, but does not include an office or employment.[124]
The presence of a reasonable expectation of profit is an important factor to be considered. In
reviewing recent decisions, we noted that the criteria used to determine whether there is a
reasonable expectation of profit under the E.T.A. are those which have been developed by the
case law under the I.T.A..[125]
The definition of business provided in the E.T.A. seems broader than that found in the I.T.A..
In Aubrett Holdings Ltd.[126], the issue was whether the purchase of the assets of two
insurance agencies by Aubrett Holdings, an insurance agent, was a taxable supply. As for
whether the appellant’s activity was a business or an adventure in the nature of trade, the judge
said the following:
The definition of "business" as it is defined in the Act and used in the definition of commercial
activity is particularly important. "Business" is very broad and the activities that were
undertaken by the Vendor in these circumstances, the sale of assets fits into the definition of
business as an "undertaking of any kind whatever".
Commercial activity also includes an adventure or concern in the nature of trade and if the
Appellant’s activity is not a business then it is an adventure or concern in the nature of
trade.[127]
Generally speaking, the notion of business activity is used much more frequently than the that of
business in the E.T.A.[128] This is not surprising since the purpose of a consumption tax is
primarily to tax any business operation. The issue is not whether a business was present, but
whether according to the facts there is a business operation. Note that, although some
principles arising from decisions relating to the I.T.A. are used in connection with the E.T.A., we
should be careful about blindly applying them. Some decisions cannot be transposed since the
E.T.A. talks about "supply" whereas the I.T.A. talks about "income".[129]
The Canada Pension Plan[130] defines "business" in the following terms:
"business" includes a profession, calling, trade, manufacture or undertaking of any kind
whatever, and includes an adventure or concern in the nature of trade but does not include an
office or employment.[131]
Under that statute, the concept of business is often used in a context in which the distinction
between an employee and an independent worker must be made, such as for example in the
Wiebe Door Services Ltd.[132] decision. The courts generally apply the principles arising out
of decisions relating to the I.T.A.. Note also that the definition of "business" in the C.P.P. is
similar in several respects to that of the I.T.A..
As for the Employment Insurance Act[133], it uses the notion of business, but without
defining it. It is also used in cases where a distinction must be drawn between an independent
worker and an employee. The principles resulting from decisions relating to the I.T.A. are also
applied.[134]
In the case of the C.P.P. and the E.I.A., the issue is mainly the identification of the employee,
who will receive monies upon the loss of his employment or when he retires, and the employer,
who has to pay the contributions during the employment. Income generated by a business and
business operations are not covered by that statute. The notion of business is thus related to a
taxpayer’s status.
2 DIFFERENCE BETWEEN THE CONCEPT IN TAX LAW AND IN CIVIL LAW:
DISSOCIATION BETWEEN THE TWO CONCEPTS
At the beginning of our analysis we pointed to the opinion expressed by certain authors that the
Quebec legislator, in its definition of what constitutes the carrying on of an enterprise, seemed to
be inspired by the definition that flows from tax jurisprudence.[135] The author
Dalphond[136], however, is of the view that the definition in article 1525 paragraph 3 C.C.Q. is
not as broad as that used in the I.T.A.. We share that opinion. In our analysis of the tax
legislation, we noticed the existence of several tax law concepts which do not have a
counterpart in civil law.
The notion of carrying on a business, whether under tax law or civil law, refers to an organized
economic activity. The distinction between the carrying on of an enterprise and an investment
activity in civil law, as mentioned in our analysis, recalls the distinction in tax law between
property income and business income.
The carrying on of a business within the meaning of the I.T.A. includes any type of activity which
involves an adventure or concern in the nature of trade, whereas the C.C.Q. limits the carrying
on of an enterprise to an organized economic activity. It is therefore conceivable that there is no
carrying on of an enterprise within the meaning of the C.C.Q. in certain circumstances in which,
for tax purposes, there would be business income or in which property is put at risk for the
business.
As for the presumption that income received from or generated by an activity carried on in
pursuit of an object set out in the corporation's statutes of incorporation is income from a
business, and therefore presumes the existence of a business, it does not seem to be applicable
in civil law.[137] This presumption stems from English tax jurisprudence. The C.C.Q.
specifically recognizes that a company can engage in activities other than the operation of an
enterprise.[138] Thus, we cannot assume that a company necessarily carries on a business.
Finally, when the expressions "reasonable expectation of profit" and "active business"are used,
one must refer to the principles developed by tax jurisprudence, inspired by the common law,
since they do not exist in civil law.
In the I.T.A., the legislator chose to broaden the notion of business by including elements which
in civil law are not considered to be an enterprise. In cases where the legislator expressly
provided for a specific regime applicable to the notion of business, tax law and provincial
private law are dissociated.
However, as mentioned earlier, the I.T.A. does not define the notion of business itself, it only
provides elements which are included in the idea of "business" under tax law. Accordingly, to
define what a business is, we may have to turn to the notion of enterprise in civil law or that of
business in common law, depending on the source of the litigation. In such a case, there is
complementarity between federal tax law and provincial private law.
3 OUR RECOMMENDATIONS
Our review of the state of tax law on the notion of "business" has demonstrated that the I.T.A.
and tax jurisprudence form a body of rules providing us with the criteria necessary to determine
whether a business exists. We are generally of the opinion that the various tests, including those
established by the case law, seem to be understood by the Canada Customs and Revenue
Agency, judges, tax specialists, taxpayers,etc. We also note that over the past twenty years the
Supreme Court of Canada has had the opportunity to decide on the different tests used to
determine whether a business exists.
However, since the I.T.A. does not define the notion of business itself, one may have to turn to
the notion of enterprise in civil law or business in common law, depending on the source of the
litigation, to fill the void.
In paragraph 2 of the preliminary provision, the C.C.Q. sets forth the jus commune of the
province. Where the I.T.A. is incomplete, courts asked to render decisions on tax matters
should refer to it. According to Jean-Maurice Brisson:
[Translation] Every time a federal law we wish to apply in Quebec uses a notion of private law
without defining it and the Interpretation Act is also silent, or it does not cover the entire field
possible within the jurisdiction of the private law which is exercised, the Code civil provides the
conceptual support required for an intelligent application of the said law. The implicit
dependence of the federal legislation is thus by far the most widespread situation.
The author adds:
[Translation] In tax matters, considerations of equality of taxpayers before the tax department
may lead the legislator to give some legal notions an endorsement which does not coincide with
provincial law.
Such a comment clearly illustrates the situation one is confronted to when analysing the notion of
business, which not only differs from the notion of enterprise under the C.C.Q., but also from
the notion of business used in common law.
We noted that the I.T.A. is dissociated from the C.C.Q. with regard to the notion of business,
but only with respect to certain expressions which the legislator chose to include or define.
Furthermore, the notion of business itself is not defined in the I.T.A., which also implies that
there may be complementarity.
The harmonization bill entitled A First Act to harmonize federal law with the civil law of the
Province of Quebec and to amend certain Acts in order to ensure that each language
version takes into account the common law and the civil law was tabled on May 11,
2000. One of the main components of the bill is changes to the federal Interpretation
Act[139]. The changes consist in inserting provisions recognizing the coexistence of two
Canadian legal traditions (Quebec civil law and common law in the other provinces) and
confirming the need to refer to provincial private law when applying a federal enactment.
Accordingly, where federal law does not define a private law term, one must turn to the
common law in force in the province in which the case arises.
This rule had already been stated by the author Brisson and was reiterated in St-Hilaire v.
Canada (Attorney General). The issue in that case was whether the meaning of the words
"surviving spouse" and "succession" in the federal Public Service Superannuation Act should
be interpreted in light of the C.C.Q. or the common law where the law is silent. Article 620
C.C.Q. states that "a person convicted of making an attempt on the life of the deceased" is
unworthy of inheriting by operation of law. Décary J., dissenting in part, made the following
comments with respect to the complementarity between federal law and the C.C.Q. where a
case arises in Québec.
It is the Constitution of Canada itself which provides that some federal laws have differing
effects according to whether they are applied in Quebec or in the other provinces. By
guaranteeing the perpetuity of the civil law in Quebec and encouraging in section 94 the
uniformization of the laws of provinces other than Quebec relative to property and civil rights,
the Constitution Act, 1867 enshrines in Canada the federal principle that a federal law that
resorts to an external source of private law will not necessarily apply uniformly throughout the
country. To associate systematically all federal legislation with common law is to ignore the
Constitution.
A judge who must interpret and apply a federal enactment in a dispute concerning civil rights in
Quebec must know that as a general rule, and subject to what will be said later in regard to so-
called public law statutes, the suppletive law is the civil law. This does not mean that no attempt
should be made to harmonize the effects of federal statutes throughout the country wherever this
is possible in the private law. (See: Canada v. Construction Bérou (1999), 251 N.R. 115
(F.C.A.); Biderman v. Canada (2000), 253 N.R. 236 (F.C.A.).) What it does mean is that
asymmetry is the rule under the Constitution. It also means that if there is harmonization, it may
draw equally on both the civil law and the common law.
A Quebec litigant involved in an action pertaining to his civil rights under a federal enactment
that is silent in this regard is entitled to expect that his civil rights will be defined by the Quebec
civil law, even if the adverse party is the federal government. As Professor Morel clearly states,
in "Harmonizing Federal Legislation with the Civil Code of Québec: Why and Wherefore?", a
study published in the Department of Justice Canada collection (supra, par. 25):
The complementarity of federal private law legislation with Quebec civil law -- as with the basic
law of every province -- is the rule both in principle and, if only because Parliament rarely
interferes with it, in practice. (p. 17)
For a more systematic application, the legislator seems to have felt the need to codify this rule of
interpretation. Accordingly, the federal Interpretation Act contains the following Section:
Art. 8.1 Both the common law and the civil law are equally authoritative and recognized sources
of the law of property and civil rights in Canada and, unless otherwise provided by law, if in
interpreting an enactment it is necessary to refer to a province's rules, principles or concepts
forming part of the law of property and civil rights, reference must be made to the rules,
principles and concepts in force in the province at the time the enactment is being applied.
As to whether the definition of business in the I.T.A. is sufficient to dissociate the federal law
from Quebec civil law, we believe it is not, since the dissociation is incomplete. The term
"business" itself is not defined and, following the amendment made to the Interpretation Act,
the courts will have to turn to private law to complete it. In addition, even if the notion of
business was defined in the I.T.A., there would still be partial dissociation since the elements
which are included in the notion of business, for example "professions", "trade", "commerce",
"industries", are not defined in the I.T.A.. We must therefore refer to the private law of the
provinces to define these terms and they could have a different meaning depending on the
province in which the litigation takes place.
We mentioned above that the notion of business in tax law is broader than that of the civil law or
common law. In addition, the concept of business in common law and in civil law present some
similarities, but are not identical. For the purpose of tax policies dealing with the equality of
treatment of taxpayers across Canada, the addition of sections 8.1 and 8.2 to the
Interpretation Act could mean that Canadian taxpayers will not be treated the same way
because of the province where the litigation arises.
Thus, to ensure that all taxpayers are treated equally, the notion of business in the I.T.A. could
be made more precise and defined.
Business could, for example, include the following elements:
(1) an organized activity of a commercial nature;
(2) time, attention and work;
(3) reasonable expectation of profit;
(4) active operation.
The definition should be broad enough to allow it to adapt to new business realities. It could
also include certain tests developed by tax case law as well as elements of common law or
Quebec civil law.

BIBLIOGRAPHY
LEGISLATION
Civil Code of Lower Canada.
Civil Code of Québec, S.Q. 1991, c.64.
Taxation Act, R.S.Q. ch. I-3.
Income I.T.A., R.S.C. (1985), ch. 1 (5th Supp.).

GOVERNMENT DOCUMENTS
QUÉBEC (Prov.). Ministère de la Justice. Commentaires du Ministre de la justice, Le Code
civil du Québec, Québec, Publications du Québec, 1993, art. 1525 and 2186.
REVENUE CANADA, Interpretation Bulletin IT-206R "Separate Businesses", October 29,
1979.
REVENUE CANADA, Interpretation Bulletin IT-459 "Adventure or Concern in the Nature
of Trade", September 8, 1980.
REVENUE CANADA, Interpretation Bulletin IT-434R "Rental of Real Property by
Individual", April 30, 1982.
REVENUE CANADA, Interpretation Bulletin IT-218R "Profit, Capital Gains and Losses
from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real
Estate from Capital Property to Inventory and Vice Versa", September 16, 1986.
REVENUE CANADA, Interpretation Bulletin IT-420R3 "Non-Residents - Income Earned
in Canada", March 3, 1992.
REVENUE CANADA, Interpretation Bulletin IT-433R "Farming or Fishing - Use of Cash
Method", June 4, 1993.
REVENUE CANADA, Interpretation Bulletin IT-73R5 "The Small Business Deduction",
February 5, 1997.

JURISPRUDENCE
Smith v. Anderson (1880), 15 Ch. D. 247.
Salomon v. Salomon & Co., [1897] A.C. 22 (HL).
Californian Copper Syndicate v. Harris (1904), 5 T.C. 159 (Ex., Scot.).
Martin v. M.N.R., 3 D.T.C. 1199 (Exchequer Court).
Commissioners of Inland Revenue v. Korean Syndicate Ltd. (1921), 12 T.C. 181 (C.A.).
The Commissioners of Inland Revenue v. The South Behar Railway Co. Ltd. (1925) 12
T.C. 657.
Anderson Logging Co. v. The King, [1925] S.C.R. 45.
National Trust Company Ltd. (as Executor of Robert MaLaughlin deceased) v. M.N.R.,
52 D.T.C. 1159 (Exchequer Court).
No. 249 v. M.N.R., 55 D.T.C. 229 (T.A.B.).
M.N.R. v. Taylor, 56 D.T.C. 1125 (Exchequer Ct.).
M.N.R. v. Eastern Textile Products, [1957] C.T.C. 48 (Exchequer Ct.).
M.N.R. v. Ottawa Car Aircraft, [1957] C.T.C. 59 (Exchequer Ct.).
Rosyth Building & Estates Co. Ltd. v. P. Rogers, 8 T.C. 11.
Fontaine Watch Co. v. M.N.R., 60 D.T.C. 535 (C.A.I.).
Western Leaseholds Ltd. v. M.N.R., [1960] S.C.R. 10.
Carland (Niagara) Ltd. v. M.N.R., 64 D.T.C. 139 (T.A.B.).
Household Prod. Co. Ltd. v. M.N.R. (1964), 34 Tax. A.B.C. 441.
Oakley Motors Ltd. v. M.N.R. (1966), 41 Tax. A.B.C. 280.
Wood v. M.N.R., 69 D.T.C. 5073 (S.C.C.).
Tara Exploration and Development Company Ltd. v. M.N.R., 72 D.T.C. 6288 (S.C.C.).
Rose v. M.N.R., 73 D.T.C. 5083 (F.C.A.).
Tantus Estates Ltd. v. M.N.R., [1973] C.T.C. 2017 (T.R.B.).
Queen & Metcalfe Carpark Ltd. v. M.N.R., [1973] C.T.C. 810, 74 D.T.C. 6007 (F.C.T.D.),
confirmed by [1976] C.T.C. xvi (F.C.A.)
Garden Investments Ltd. v. M.N.R., [1974] C.T.C. 2013 (T.R.B.).
Meredith v. The Queen, [1975] C.T.C. 570 (F.C.T.D.).
M. R. T. Investments Ltd. v. The Queen, [1976] 1 C.F. 126, 75 D.T.C. 5224, confirmed by
76 D.T.C. 6158 (F.C.A.).
Moldowan v. The Queen, 77 D.T.C. 5213 (S.C.C.).
Birmount Holdings Ltd. v. The Queen, 78 D.T.C. 6254 (F.C.A.).
De Villard v. M.N.R., 78 D.T.C. 1047. (T.R.B.)
American Leaf Blending Co. v. Director-General of Inland Revenue, [1979] A.C. 676
(P.C.),
Tamas v. The Queen, 81 D.T.C. 5150 (F.C.T.D.).
The Queen v. Marsh & McLennan Ltd., 83 D.T.C. 5180 (F.C.A.).
British Columbia Telephone Company v. M.N.R., 86 D.T.C. 1286 (T.C.C.).
Canadian Marconi Company v. The Queen, [1986] 2 S.C.R. 522 (S.C.C.).
Ensite Ltée v. The Queen, [1986] 2 S.C.R. 509 (S.C.C.).
Wiebe Door Services Ltd. v. M.N.R., 87 D.T.C. 5025 (F.C.A.).
Mackinnon v. M.N.R., 88 D.T.C. 1651 (T.C.C.).
Michel Sirois v. M.N.R., 88 D.T.C. 1114 (T.C.C.).
Dixie X-Ray Associates Ltd. v. The Queen, 88 D.T.C. 6076 (F.C.T.D.).
Friesen v. The Queen, 93 D.T.C. 5313 (F.C.A.).
Park Avenue Chevrolet Oldsmobile Cadillac inc. v. Joe Odman, [1994] R.J.Q. 2697.
Charlemagne Landry v. The Queen, 94 D.T.C. 6499 (F.C.A.).
Landry (Syndic de), C.S. Hull 500-11-000625-948, 1994-12-19.
S.M.R.Q. v. Bergeron, 1994 R.J.Q. 2552.
Belinco Développement inc. v. Bazinet, [1996] R.J.Q. 1390 (C.S.).
Thomas Campbell v. The Queen, 96 D.T.C. 1221 ( T.C.C.).
Raymond Bissonnette inc. v. Martel, C.Q. Saint-François (Sherbrooke) 450-02-001410-
953, 1996-05-03 .
Enno Tonn and al. v. The Queen, 96 D.T.C. 6001 (F.C.A.).
Walker (syndic de), C.S. Saint-François (Sherbrooke) 450-11-000094-965, 1996-07-03.
Two Carlton Financing Ltd. v. The Queen, 96-523-GST-G.
Construction Boyer & Truchon inc. (Syndic de), C.S. Montreal 500-11-002110-951, 1997-
04-09.
Hickman Motors Ltd. v. The Queen, 97 D.T.C. 5363 (S.C.C.).
S.M.R.Q. v. Lefebvre, [1997] R.D.F.Q. 300.
S.M.R.Q. v. Lasalle, [1997] R.D.F.Q. 289.
Graveline v. The Queen, 97-2784-GST-I.
Aubrett Holdings Ltd. v. The Queen, 97-710-GST-I.
Girouard v. Rankin, [1998] R.J.Q. 595.
Dionne (Syndic de), [1998] R.J.Q. 124 (C.S.),
Gibbons v. Wawanesa, [1998] R.J.Q. 2007 (CA).
Canderel Ltd. v. The Queen, [1998] 1 S.C.R. 147 (S.C.C.).
U.E.S., Local 298 v. Bibeault, [1998] 2 S.C.R. 1048 (S.C.C.).
Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298 (S.C.C.).
9025-0366 Québec inc. v. Puzo, C.Q. Montreal 500-02-067939-988, 1999-09-14.
Raymond v. The Queen, 1999-4742(GST).

MONOGRAPHS
DESJARDINS DUCHARME STEIN MONAST, L’entreprise et ses salariés , Montréal,
Les Éditions Transcontinental inc., 1996.
Guy LORD, Jacques SASSEVILLE and Diane BRUNEAU, Les principles de l’imposition
au Canada, 12e ed., Montréal, Wilson & Lafleur, 1998.
John A. WILLES, Contemporary Canadian Business Law, Principles and Cases, 2nd ed.,
1986, McGraw-Hill Ryerson Ltd.

LAW JOURNALS
Claude AUGER and Marc-André BÉLANGER, "Allocation interprovinciale du revenu", in
1999 Conference Report, Toronto, Canadian Tax Foundation, 1999.
Shannon L. BAKER and Dale S. MEISTER, "Non-resident rendering services in Canada:
Regulation 105 and other issues", (1999), vol. 45, no. 5 Canadian Tax Journal, pp. 1321-
1341.
Albert BOHÉMIER and François FERLAND, "Definition de l’entreprise", (1999) in Recueil
de textes DRT-2401 Cours de Droit des affaires 1 – Université de Montréal, pp. 201-204.
Jean-Maurice BRISSON and André MOREL, "Droit fédéral et civil law: complémentarité,
dissociation" (1996) 75 Can. Bar R. 297-334.
Pierre J. DALPHOND, "Enterprise et vente d’entreprise", (1994) 54 R. du B. 35-67.
Élise DUBÉ, "Notions de droit international privé", Conférence de l’APFF no. 5, Montreal,
Association de planification fiscale et financière, 1993, pp. 5-6.
John DURNFORD, "The Distinction Between Income From Business and Income From
Property, and the Concept of Carrying on Business", (1991), vol. 39, no. 5 Canadian Tax
Journal 1131-1205.
Patrick GLENN, "Le droit comparé et l’interprétation du Code civil du Québec", Le nouveau
Code civil: interpretation et application: les journées Maximilien-Caron 1992, Montréal,
Éditions Thémis, 1993, p. 177-196.
Mistrale GOUDREAU, "De l’acte commercial à l’acte de l’entreprise dans le Code civil du
Québec", (1994) 25 R.G.D. 235-249.
Constantine A. KYRES, "Carrying on Business in Canada", (1995), Vol. 45, No. 5 Canadian
Tax Journal 1629-1671.
Jinyan LI, "Rethinking Canada’s Source Rules in the Age of Electronic Commerce: Part 1",
(1999), vol. 45, No. 5 Canadian Tax Journal, pp. 1077-1125.
Pierre LESSARD and André MORISSETTE, "The New Civil Code of Québec" in 1993
Conference Report, Toronto, Canadian Tax Foundation, 1993.
John R. OWEN, "The Reasonable Expectation of Profit Test: Is There a Better Approach?",
(1996), vol. 44, No. 4 Canadian Tax Journal, pp. 979-1015.
Paul MARTEL, "Sociétés, companies et entreprises" , in C.F.P.B.Q., École du Barreau du
Québec, 1993-1994.
Patrice VACHON, "La notion de l’entreprise de l’article 1525 C.C.Q. et son impact sur les
transactions mobilières" , in Développements récents en droit du travail 1995 , Service de la
formation permanente du Barreau du Québec, Cowansville, Les éditions Yvon Blais, pp. 1117-
140.

DATA BASE SERVICES
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9302267, March 31, 1993.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9337715, March 29, 1994.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9423717, March 1, 1995.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9709525, September 17, 1997.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9831795, January 21, 1999.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9832187, January 27, 1999.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9830907, May 28, 1999.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9924657, November 30, 1999.
CCH Tax Works (electronic tax information service on the Internet), Markham, Ont., CCH
Canadian, technical interpretation 9918467, January 12, 2000.



* The author acknowledges with thanks the assistance of Julie Gaudreault-Martel (student-
at-law) in the researching and the writing of this paper.
[1] Income Tax Act, R.S.C. (1985), ch. 1 (5th Supp.) (hereinafter referred to as the "I.T.A.").
[2] Civil Code of Québec, S.Q. 1991, c. 64 (hereinafter referred to as the "C.C.Q.").
[3] This change stems from [Translation] "the fact that the necessities of trade, those needs
specific to merchants which require speed and multiple operations and which are reflected in a
lessening of the written formalism with respect thereto, larger credit facilities offered to them
and, in return, a reinforcement of the system guaranteeing the performance of their obligations,
are today considered, here and elsewhere, as needs common to all organized economic
activities." Ministère de la Justice. Commentaires du Ministre de la Justice, Le Code civil du
Québec , Vol. I, (Québec: Revue du Barreau, Les Publications du Québec, 1993), art. 1525,
p. 510.
[4] See the text by Pierre J. DALPHOND, "Entreprise et vente d'entreprise" , (1994) 54 R. du
B. 35-67 for a review of the concept of entreprise in France, at pages 39 to 42. See the
following doctrine relating to the notion of business in French law: Marcel PLANIOL, Traité
élémentaire de droit civil , 9th ed., Paris, Librairie générale de droit et de jurisprudence, 1923,
p. 348, 379, 632 to 637 and Joseph HAMEL and Gaston LAGARDE, Traité de droit
commercial , vol. 1 (Paris, Librairie Dalloz, 1954), p. 1-17, 33, 171-177 and 243-259.
[5]Ministère de la Justice, Commentaires du Ministre de la Justice, op. cit., note 3, p. 510.
[6] Cour d’appel de Paris, [1987] Recueil de Dalloz Sirey, 37e cahier, jurisprudence, p. 562,
cited in the text by P. DALPHOND, loc. cit., note 4.
[7] Répertoire de droit commercial, 2nd ed., vol. III, (Paris: Librairie Dalloz.), no 41.
[8] Cours de droit commercial , 1er volume, 10 e ed., Paris, Montchrenstien, 1992, p. 168.
[9] Albert BOHÉMIER and François FERLAND, "Definition de l’entreprise" , (1999) in
Recueil de textes DRT-2401 Cours de Droit des affaires 1 – Université de Montréal, p. 202.
[10] Note that an adventure in the nature of trade is excluded from the notion of enterprise
within the meaning of the C.C.Q. since it does not constitute an organized activity.
[11] As in France, article 1525 of the C.C.Q. recognizes that an enterprise may carried on
individually or collectively.
[12] See in this respect the texts by Albert BOHÉMIER and P.-P. CÔTÉ, Droit commercial
général , 3e ed. Vol. 1, (Montréal: Éditions Thémis, 1985) and by Léo DUCHARME, De
l’acte de commerce en droit québécois , doctoral thesis, (Montréal, Université de Montréal,
1977).
[13]Ministère de la Justice, Commentaires du Ministre de la Justice, op. cit., note 3.
[14] Id., p. 728.
[15] Mistrale GOUDREAU, "De l’acte commercial à l’acte de l’entreprise dans le Code civil
du Québec" ] (1994) 25 Revue Générale de droit 235. The author states the following on
page 239: [Translation] "Henceforth, we will have to distinguish between the activity of a
partnership and the organized activity of a partnership, since certain transactions are not
complex or refined enough to constitute a business. In fact, one might ask whether the legislator
has confused material organization and enterprise; perhaps in the mind of the legislator, an
investment partnership does not carry on an enterprise because it does not have a sign on the
street and a large number of material goods available! The complexity and number of
transactions entered into by an investment group do not count when determining whether there
is a business."
[16] See in this respect the discussion by P.J. DALPHOND, loc. cit., note 4, p. 67.
[17]Thus, a trustee could carry on an enterprise under article 2684 of the C.C.Q.. See in this
respect the text by Patrice VACHON, "La notion d’entreprise de l’article 1525 C.c.Q. et son
impact sur les transactions mobilières" , in Développements récents en droit du travail 1995,
Service de la formation permanente du Barreau du Québec, (Cowansville: Les éditions Yvon
Blais), p. 117-140.
[18]M. GOUDREAU, loc. cit., note 15, p. 237 and 238.
[19] See in this respect the text by Paul MARTEL and Georges LEBEL, La corporation sans
but lucratif au Québec , loose-leaf edition, (Montréal: Wilson et Lafleur Martel), p.1-29 and
the text by P.J. DALPHOND, loc. cit., note 4, p. 44, who insist that an enterprise may be
formed other than for the purpose of making a profit.
[20] A.BOHÉMIER and F. FERLAND, loc. cit., note 9, p. 203.
[21] P.J. DALPHOND, loc. cit., note 4, p. 44.
[22] P.J. DALPHOND, loc. cit., note 4, p.52 and 53 and see the text by P. VACHON, loc.
cit., note 17, p. 138.
[23] See in this respect the text by P. VACHON, loc. cit., note 17, which analyses the terms of
the definition in art. 1525 C.C.Q., comparing it with the definitions found in the various
dictionaries and encyclopedias. At the end of his text, the author proposes a definition which
may clarify the elements contained in article 1525. The proposed definition is: [Translation] "an
organized ensemble (that is, a collection of human factors and material factors or means), either
commercial in nature or not, surrounding the economic activity (that is, a repetition of acts or
operations) of one or more persons, consisting of producing, administering or alienating goods,
or providing a service, which acts or operations are organized (that is, arranged, planned or
ordered) so as to achieve a specific result."
[24] Jean PINEAU, "Théorie des obligations", La Réforme du Code civil, Obligations,
contrats nommés, Vol. 2, Texts compiled by the Barreau du Québec and the Chambre des
notaires du Québec, (Sainte-Foy: Les Presses de l’Université Laval), 1993, p. 128 and 129.
[25] See in this respect the following decisions: Park Avenue Chevrolet Oldsmobile Cadillac
inc. v. Joe Odman, [1994] R.J.Q. 2697, Raymond Bissonnette inc. v. Martel, C.Q. Saint-
François (Sherbrooke) 450-02-001410-953, 1996-05-03, Walker (syndic de), S.C. Saint-
François (Sherbrooke) 450-11-000094-965, 1996-07-03, Construction Boyer & Truchon
inc. (Syndic de), S.C. Montréal 500-11-002110-951, 1997-04-09 and 9025-0366 Québec
inc. v. Puzo, C.Q. Montréal 500-02-067939-988, 1999-09-14.
[26] Article 2648 C.C.Q. reads as follows: "The movable property of the debtor which
furnishes his main residence, used by and necessary for the life of the household, may be
exempted from seizure to the extent fixed by the Code of Civil Procedure, except where such
movables are seized for sums owed on the price. The same rule applies to instruments of work
needed for the personal exercise of a professional activity, except where such movables are
seized by a creditor holding a hypothec thereon".
[27] R.S.Q., c. C-25 (hereinafter the "C.C.P."). Article 552 para. 3 reads as follows: "The
debtor must be permitted to select from among his property and withdraw from seizure:
[…]The instruments of work needed for the personal exercise of his professional activity."
[28] Landry (Syndic de), S.C. Hull 500-11-000625-948, 1994-12-19.
[29] Ministère de la Justice. Commentaires du Ministre de la Justice, op. cit., note 3, p. 871.
With respect to the exercise of a professional activity, it states as follows: [Translation] "[Article
2648 para. 2 C.C.Q.] allows to exempt from seizure the instruments of work needed for the
personal exercise of a professional activity, that is, the instruments which allow a person to
exercise his profession regardless of any notion of carrying on an enterprise. Accordingly, a
person may withdraw from seizure his books, tools or other objects which allow him to exercise
his art, trade or profession, but not his office furniture, instruments or machines which transform
the exercise of the activity into the carrying on of an enterprise. However, such instruments of
work cannot be withdrawn from seizure by a creditor with a hypothec on them."
[30] Gibbons v. Wawanesa, [1998] R.J.Q. 2007 (C.A.). That case involved an attempt to
seize a taxi belonging to a taxi-driver who earned his living driving the vehicle. It belonged to
the debtor and not the co-op. It was held that the taxi was an instrument of work needed for the
personal exercise of the driver’s professional activity within the meaning of the exception
contained in art. 552 C.C.P.
[31] Ministère de la Justice. Commentaires du Ministre de la Justice, op. cit., note 3.
[32] Id., 2010.
[33] Girouard v. Rankin, [1998] R.J.Q. 595.
[34] See also the Dionne (Syndic de) case, [1998] R.J.Q. 124 (S.C.), which describes the
complexity of the notion of business, which should consist of an organized economic activity. A
certain degree of physical organization is required which is not found with simple tradesmen, but
is found with merchant-tradesmen.
[35] Belinco Développement inc. v. Bazinet, [1996] R.J.Q. 1390 (S.C.).
[36] Id., 1404.
[37] John A. WILLES, Contemporary Canadian Business Law, Principles and cases, 2nd
ed., 1986, (Toronto: McGraw-Hill Ryerson Ltd.), p.298.
[38] In Rosyth Building & Estates Co. Ltd. v. P. Rogers, 8 T.C. 11, p. 17, it was held that:
"It may in the ordinary ease be difficult to determine the point at which mere ownership of
heritage passes into the commercial administration by an owning trader, but that is a question of
fact of a kind which is not infrequently met with under the Income Tax Acts, and it is solved in
the present case in favour of the Crown because it is common ground that the Appellants'
company is a business, a land investment concern."
[39] Martin v. M.N.R., (1949) Ex. C.R. 529 or 3 D.T.C. 1199.
[40] Id., 1201.
[41] No. 249 v. M.N.R., 55 D.T.C. 229 (T.A.B.).
[42] De Villard v. M.N.R., 78 D.T.C. 1047 (T.R.B.).
[43] Id., 1051.
[44] Salomon v. Salomon & Co., [1897] A.C. 22 (HL).
[45] Smith v. Anderson (1880), 15 Ch. D. 247 was cited by Wilson J. in Canadian Marconi
Company v. The Queen, [1986] 2 S.C.R. 522 (S.C.C.), where she states that the presumption
appears to have originated in a comment made by Jessel M.R. in Smith v. Anderson (1880),
15 Ch. D. 247. There, the Master of the Rolls said at pp. 260-61: You cannot acquire gain by
means of a company except by carrying on some business or other, and I have no doubt if any
one formed a company or association for the purpose of acquiring gain, he must form it for the
purpose of carrying on a business by which gain is to be obtained."
[46] Canadian Marconi Company v. The Queen, supra, note 45, at par. 8, where Wilson J.
describes the presumption in the following manner: "When you come to an association or
company formed for a purpose, you say at once that it is a business, because there you have
that from which you would infer continuity; it is formed to do that and nothing else, and,
therefore, at once you would say that the company carried on a business".
[47] Id.
[48] Id., par. 8 and 9.
[49] Reference is made to the English Partnership Act of 1890.
[50] Partnership Act, R.S.O. 1980, c. 370.
[51] Id., art. 2.
[52] Pierre BARSALOU, "Impact des particularités du droit civil dans l’application des lois
fiscales" , in 1999 Conference Report, (Toronto: Canadian Tax Foundation, 1999), p. 8: 1-
31.
[53] See in this respect the decision of Bastarache J. in Continental Bank Leasing Corp. v.
Canada, [1998] 2 S.C.R. 298 (S.C.C.).
[54] Lindley & Bank on Partnership, 17th ed., (London: Sweet & Maxwell, 1995), p. 73.
[55] Continental Bank Leasing Corp. v. Canada, supra, note 53.
[56] No. 249 v. M.N.R., supra, note 41.
[57]De Villard v. M.N.R., supra, note 42, 1050.
[58] By traditional business practices we mean the production or sale of goods, whereas the
notion of business tends to cover trade-related, farming or professional activities.
[59]M.N.R. v. Taylor, 56 D.T.C. 1125 (Exchequer Ct.)
[60]Id., 1131.
[61]Tara Exploration and Development Company Ltd. v. M.N.R., 70 D.T.C. 6370
(Exchequer Ct.), later confirmed by the Supreme Court of Canada (72 D.T.C. 6288).
[62]Id., 6374.
[63] It was held that the "central management and control" was located in Ireland.
[64] Birmount Holdings Ltd. v. The Queen, 78 D.T.C. 6254 (F.C.A.).
[65] Id., 6263.
[66] Friesen v. Canada, [1995] 3 S.C.R. 103.
[67]Id., at par. 15, Major J. states the following: "The concept of an adventure in the nature of
trade is a judicial creation designed to determine which purchase and sale transactions are of a
business nature and which are of a capital nature. This question was particularly important prior
to 1972 when capital transactions were completely exempt from taxation. The question was
succinctly stated by Clerk L.J. in Californian Copper Syndicate v. Harris (1904), 5 T.C. 159
(Ex., Scot.), at p. 166:
Is the sum of gain that has been made a mere enhancement of value by realizing a security, or is
it a gain made in an operation of business in carrying out a scheme for profit-making?
[68]Id., par 19.
[69] Sub. 10(1) of the I.T.A. states that "For the purpose of computing a taxpayer's income for
a taxation year from a business that is not an adventure or concern in the nature of trade,
property described in an inventory shall be valued at the end of the year at the cost at which the
taxpayer acquired the property or its fair market value at the end of the year, whichever is
lower, or in a prescribed manner."
[70]Thomas Campbell v. The Queen, 96 D.T.C. 1221 ( T.C.C.).
[71]Tamas v. The Queen, 81 D.T.C. 5150 (F.C., T.D.) 5152.
[72] For a more complete approach to the issue, see the text by John DURNFORD, "The
distinction between income from business and income from property, and the concept of
carrying on business", (1991), vol. 39, No.5, Canadian Tax Journal, p.1131-1205.
[73] Subsection 125(7) of the I.T.A..
[74] This distinction is relevant in civil law because it is treated differently from tax law.
[75] Before the integration of the test of a business with more than 5 employees, the
administration of property did not constitute a business since those activities do not constitute an
enterprise in civil law or common law. In No. 249 v. M.R.N., supra, note 41, Monet J. said the
following: "Could it be that the Income Tax Act reaches farther than the general law and that
under that Act, the administration of leased properties may constitute a business, while this is not
the case under civil law or under common law? It is to be noted that the statutory definition of
the word business is not limited to the ordinary definition of the word itself. It states that, in
addition to its ordinary meaning, the word business includes a profession, calling, trade,
manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the
nature of trade. A real estate owner's activity is surely not a profession, trade or business, but
could it be regarded as an undertaking of any kind whatsoever within the meaning of section
127(1)(e) of the Act? I do not believe so. Indeed, the words "undertaking of any kind
whatsoever" must be read in their context. These words are joined to the word manufacture. A
manufacture or undertaking of any kind whatsoever imply a commercial concept. The other
words, "profession", "calling", "trade" "adventure", "concern in the nature of trade" imply the idea
of services, exchange and trade. In my opinion, therefore, it must be concluded that "an
undertaking of any kind whatsoever" which does not imply a commercial concept, does not
come within the definition of the word business as found in the Income Tax Act.(p. 240)
[…]
The first is that, according to the learned Judge himself, it is not a definition under the general
law but "as used in various statutes". He is therefore taking the word business as defined in
certain statutes unknown to us. The Income Tax Act is certainly not concerned, for, as we have
just seen, section 127(1)(e) of that Act does not change the ordinary meaning of the word
business, but merely states that in addition to its ordinary meaning it shall include the activities I
have just analyzed. The second reason is, as I believe I have demonstrated, that the general law,
civil as well as common law, has adopted a definite position regarding the leasing of real
property. The leasing of real property is not a business unless it forms part of, or is incidental to,
a business of an otherwise commercial nature. As the leasing of real property does not come
within any of the classes added by section 127(1)(e) to the ordinary meaning of the word
business, it must be concluded that if such leasing is not a business according to the criteria of
the general law, neither is it a business under the Income Tax Act. On the other hand, if it
became a business under the general law it would also be one for the purposes of the Income
Tax Act.(p. 241)".
[76] The notion of specified investment business is defined in par. 125(7) of the I.T.A.:
"specified investment business" carried on by a corporation in a taxation year means a business
(other than a business carried on by a credit union or a business of leasing property other than
real property) the principal purpose of which is to derive income (including interest, dividends,
rents and royalties) from property but, except where the corporation was a prescribed labour-
sponsored venture capital corporation at any time in the year, does not include a business
carried on by the corporation in the year where (a) the corporation employs in the business
throughout the year more than 5 full-time employees, or (b) any other corporation associated
with the corporation provides, in the course of carrying on an active business, managerial,
administrative, financial, maintenance or other similar services to the corporation in the year and
the corporation could reasonably be expected to require more than 5 full-time employees if
those services had not been provided."
[77] J. DURNFORD, loc. cit., note 72. Carland (Niagara) Ltd. v. M.N.R., 64 D.T.C. 139
(T.A.B.) also confirmed this statement. Fordham J. held as follows: "It is not necessary that
there be sustained activity before it can be maintained that a business is carried on; there may be
often periods of quiescence in almost any business[77]". This principle had already been
announced in The Commissioners of Inland Revenue v. The South Behar Railway Co. Ltd.
(1925) 12 T.C. 657, where Summer J. made the following remark at page 712: "[…] as long
as her trade debts remain undischarged, there would seem to be a presumption that a company
continues to carrying on business as long as it is engaged in collecting debts periodically falling
due to it in the course of its former business. Business is not confined to being busy; in many
business long intervals of inactivity occur."
[78]Hickman Motors Ltd. v. The Queen, [1997] 2 S.C.R. 336 (S.C.C.).
[79] In that case, L’Heureux-Dubé J. stated the following at page 359: "Where machinery is
rented out, the essential core operations may at times be limited to accepting rental revenue and
assuming the business risk and other obligations. At any time during that period, any client could
demand the execution of any of the contractual obligations, such as fixing an engine, for
example. Where, because a rental business is fortunate enough to experience no mechanical
breakdowns or accidents during a period of time, it "passively" accepts rental revenue and
assumes business risk and obligations, it does not necessarily follow that it is not carrying on a
business during that period. Holding otherwise would imply that rental businesses are
"intermittent", that is, that they carry on a business only when something goes wrong in the
operations. Such a proposition is unacceptable. [...] Contrary to my colleague Iacobucci J.'s
opinion at paras. 145 and 158 of his reasons, even if the appellant "passively" received rental
income during a period of time, it does not necessarily follow that it did not carry on an active
business".
[80]Continental Bank Leasing Corp. v. Canada, supra, note 53.
[81]Meredith v. The Queen, [1975] C.T.C. 570 (F.C., T.D.), M.N.R. v. Eastern Textile
Products, [1957] C.T.C. 48 (Exchequer Ct.) and M.N.R. v. Ottawa Car Aircraft, [1957]
C.T.C. 59 (Exchequer Ct.).
[82]J. DURNFORD, loc. cit., note 77, p.1188-1189.
[83] Garden Investments Ltd. v. M.N.R., [1974] C.T.C. 2013 (T.R.B.).
[84]Carland (Niagara) Ltd. v. M.N.R., supra, note 77.
[85] Household Prod. Co. Ltd. v. M.N.R. (1964), 34 Tax. A.B.C. 441.
[86] Oakley Motors Ltd. v. M.N.R. (1966), 41 Tax. A.B.C. 280.
[87]Tantus Estates Ltd. v. M.N.R., [1973] C.T.C. 2017 (T.R.B.).
[88]Canadian Marconi Company v. The Queen, supra, note 45.
[89]Id., 527 and 528. See also The Queen v. Marsh & McLennan Ltd., 83 D.T.C. 5180
(F.C.A.).
[90] Commissioners of Inland Revenue v. Korean Syndicate Ltd. (1921), 12 T.C. 181
(C.A.), American Leaf Blending Co. v. Director-General of Inland Revenue, [1979] A.C.
676 (P.C.), Anderson Logging Co. v. The King, [1925] S.C.R. 45, Western Leaseholds
Ltd. v. M.N.R., [1960] S.C.R. 10, Queen & Metcalfe Carpark Ltd. v. M.N.R., [1973]
C.T.C. 810, 74 D.T.C. 6007 (F.C., T.D.), confirmed by [1976] C.T.C. xvi (F.C.A.);
Fontaine Watch Co. v. M.N.R., 60 D.T.C. 535 (C.A.I.) and M. R. T. Investments Ltd. v.
The Queen, [1976] 1 C.F. 126, 75 D.T.C. 5224, confirmed by 76 D.T.C. 6158 (F.C.A.).
[91] Subs 125(7) of the Tax Act
[92]Ensite Ltée v. The Queen, [1986] 2 S.C.R. 509 (S.C.C.).
[93]Id., 625.
[94] M. GOUDREAU, loc. cit., note 15, p. 238-239.
[95]Id., 239.
[96]Hickman Motors Ltd. v. The Queen, supra, note 78.
[97] National Trust Company Ltd. (as Executor of Robert McLaughlin deceased) c.
M.N.R., 52 D.T.C. 1159 (Exchequer Court).
[98] William Moldowan c. The Queen, 77 D.T.C. 5213 (S.C.C.).
[99] Id., 5215.
[100] Michel Sirois v. M.N.R., 88 D.T.C. 1114 (T.C.C.). In that case, the taxpayer attempted
to deduct losses relating to the operation of a restaurant. He had opened a restaurant in 1976
with a seating capacity of 20. In 1983 he doubled the capacity to 40 and, in 1981 and 1982, he
suffered losses which he wished to deduct from his income for 1983 and 1984. The Court held
that there was no reasonable expectation of profit in the 1981 taxation year. However, the
situation for 1982 was entirely different. The Court based its reasoning on the fact that in 1981
the restaurant had a seating capacity of 20 and was only open 4 days a week. Note that the
Court did not provide any explanation as to why the test had to be used when it had recognized
that the restaurant was a business operation. See also the comments of John R. Owen, "The
reasonable expectation of profit test: Is there a better approach?", (1996), vol. 44, no 4,
Canadian Tax Journal, 979, at page 986.
[101]Charlemagne Landry v. The Queen, 94 D.T.C. 6499 (F.C.A.).
[102]Id., 6500.
[103]Enno Tonn and al. v. The Queen, 96 D.T.C. 6001 (F.C.A.).
[104]William Moldowan v. The Queen, supra, note 98.
[105]Enno Tonn and al. v. The Queen, supra, note 103, p. 6005.
[106]William Moldowan v. The Queen, supra, note 98.
[107]Enno Tonn and al. v. The Queen, supra, note 103, 6005. See also Timmins v. The
Queen, 96 D.T.C. 6378, at page 6384, where Weston J. held as follows: "Justice Linden
noted that the common law reasonable expectation of profit test, described in Moldowan,
resembles the business intention tests in subsection 9(1) and paragraph 18(1)(a) of the Act, in
that the taxpayer must be subjectively motivated by profit when carrying out the activities in
question. The common law test goes further than the statutory tests, however, in that it also
requires that the taxpayer's profit motive be objectively reasonable. The reasonable expectation
of profit test is stricter than the business intention test, due to its objective nature. Justice Linden
indicated, at page 17, that the objective aspect of the Moldowan test is the most significant
feature distinguishing it from the general deductibility tests in the Act".
[107]Enno Tonn and al. v. The Queen, supra, note 103.
[108] REVENUE CANADA, Interpretation Bulletin IT-364, "Commencement of Business
Operations", March 14, 1977.
[109]For example, if a proposed business is to be the purchase of materials for resale, the
materials, and not merely samples, would have to be adequate in quantity. If the proposed
business was the operation of a hotel, the date when the business commenced would be the day
when it opened its doors to guests. In the case of a cable television business, the beginning of its
operations would be the obtaining of the necessary licence. Where an activity consists merely of
a review of various business possibilities in the expectation or hope that information will be
obtained to justify going into a business of some kind, such an activity does not represent the
commencement of a business.
[110] REVENUE CANADA, Interpretation Bulletin IT-364, Op. cit., note 108, par. 2.
[111] REVENUE CANADA, Interpretation Bulletin IT-459, "Adventure or Concern in the
Nature of Trade", September 8, 1980.
[112] As for the question whether a taxpayer carries on one or more businesses, see
REVENUE CANADA, Interpretation Bulletin IT-206R, "Separate Businesses", October
29, 1979.
[113] REVENUE CANADA, Interpretation Bulletin IT-459, Op. cit., note 111, par. 1.
[114]Id., par. 2.
[115] As it is understood in civil law.
[116] REVENUE CANADA, Interpretation Bulletin IT-459, Op. cit., note 113, par. 4. See
also par. 5 to 8 regarding the taxpayer’s conduct, par. 9 to 11 regarding the nature of the
property and par. 12 and 13 regarding the taxpayer’s intention. Finally, it is clearly stated that
the fact that a transaction constitutes a single or isolated one, that the taxpayer did not create
any organization to carry out the transaction and that the transaction is totally different from any
of the other activities of the taxpayer, in and of themselves, are not sufficient to prevent a finding
that a transaction was "an adventure or concern in the nature of trade". See REVENUE
CANADA, Interpretation Bulletin IT-218R "Profit, Capital Gains and Losses from the Sale
of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from
Capital Property to Inventory and Vice Versa", September 16, 1986, REVENUE CANADA,
Interpretation Bulletin IT-434R "Rental of Real Property by Individual", April 30, 1982 for
transactions relating to immovables and REVENUE CANADA, Interpretation Bulletin IT-
433R "Farming or Fishing - Use of Cash Method", June 4, 1993, par. 7 to 10 for farming and
fishing operations.
[117] REVENUE CANADA, Interpretation Bulletin IT-73R5, "The Small Business
Deduction", February 5, 1997.
[118]Id., par. 6.
[119]Ensite Ltée v. The Queen, supra, note 92.
[120]REVENUE CANADA, Interpretation Bulletin IT-206R, op. cit., note 112.
[121] REVENUE CANADA, Interpretation Bulletin IT-73R5, op. cit., note 117, par. 8.
[122] Some indications that a corporation has ceased to carry on a business are the following:
a) it commences to distribute its assets to its shareholders in the course of winding up the
corporation and b) it sells or otherwise disposes of the business. (par. 9)
[123]Excise Tax Act, R.S.C. (1985), c. E-15 (hereinafter "E.T.A.").
[124] Subs. 123(1) of the E.T.A.
[125] For example, in Raymond v. The Queen, 1999-4742-GST-I, the court relied on
Moldowan v. The Queen, supra, note 99, in rendering its decision. In Graveline v. The
Queen, 97-2784-GST-I, it was held, based on the principles set forth in Tonn v. The Queen,
supra, note 103, that Ms. Graveline had a reasonable expectation of profit, notwithstanding the
fact that she had suffered losses since her business began operating.
[126] Aubrett Holdings Ltd. v. The Queen, 97-710-GST-I.
[127]Id., par. 18-19.
[128] See also The Queen v. 398722 Alberta Ltd., A-706-98 and Two Carlton Financing
Ltd. v. The Queen, 96-523-GST-G with respect to the transfer of a business.
[129]Aubrett Holdings Ltd. v. The Queen, supra, note 126.
[130]Canada Pension Plan, R.S.C. (1985), c. C-8 (hereinafter the "C.P.P.").
[131]Id., art. 2.
[132] Wiebe Door Services Ltd. v. M.N.R., 87 D.T.C. 5025 (F.C.A.).
[133]Employment Insurance Act, R.S.C. (1985), c.E-5, 6 (hereinafter the "E.I.A.").
[134]Wiebe Door Services Ltd. v. M.N.R., supra, note 132.
[135] P.J. DALPHOND, loc. cit., note 4, p. 47 and Paul MARTEL, "Sociétés, compagnies et
entreprises", in C.F.P.B.Q., École du Barreau du Québec, 1993-1994.
[136] P. J. DALPHOND, loc. cit., note 4, p.48.
[137]Id., p.50. In an analysis of Canadian Marconi Company v. The Queen, supra, note 45,
"Revenu de bien - v - Revenu d'entreprise", 8 Revue de Planification fiscale et successorale
621, the authors P. Archambeault and M. Mercier question the relevance of that presumption in
tax law.
[138] Art. 2186 C.C.Q.
[139]Interpretation Act, R.S.C., c. I-23 (hereinafter the "Interpretation Act")