Question Period Note: CAMPGROUNDS - SMALL BUSINESS DEDUCTIONS

Can the Minister comment on why the Canada Revenue Agency does not permit private campgrounds to benefit from the small business deduction?

• The Government recognizes the important role small businesses play in creating jobs, supporting the economy and strengthening the middle class.

• The Canada Revenue Agency is committed to working with taxpayers and ensuring they receive the benefits and credits to which they are entitled, and continues to work with small businesses to make sure they understand the tax rules that apply to them.

• Businesses must meet certain rules to qualify for the small business deduction. If the principal purpose of a business is earning rental income from real of immovable property, then the business would not be eligible for the small business deduction.

• During 2014 and 2016, the Agency reviewed over 20,000 businesses to make sure they correctly claimed the small business deduction. Less than 20 of the businesses classified specifically as recreational vehicle parks and recreational camps were reassessed to disallow the deduction.

• While I cannot comment on a specific case, I can say that the facts of each case determine if a business qualifies for the small business deduction.

• Objections and appeals processes are also available to taxpayers who disagree with the reassessment.

The Canada Revenue Agency routinely reviews tax returns of corporations that have claimed the small business deduction (SBD). The Minister and the Agency started to receive inquiries from the media and taxpayers in the spring of 2016, as a result of reviews that involved certain campground operators.

Generally, the business of a campground involves the renting of real property, and providing basic services typical to that type of rental operation. In such a situation, the principal purpose of that business would be to earn rental income from real or immovable property, and the corporation would not be eligible for the SBD, unless it employs more than five full-time employees in that business throughout the year; however, if this is not the case, but the corporation provides significant additional services that are integral to the success of its business operations, it may be eligible for the SBD.

The Department of Finance conducted a review of the pertinent legislation in 2015, during which it consulted with external stakeholders. In Budget 2016, the Department of Finance announced that the legislation was consistent with tax policy and did not need to be changed.

The CEO of the Canadian Federation of Independent Businesses (CFIB) met senior Agency officials on June 15, 2016. A follow-up letter was sent from the Minister to CFIB on July 29, 2016, reiterating the Government’s commitment to small businesses, explaining the tax rules, and noting that the Agency evaluates each situation based on its own facts. The Minister also sent a similar letter to the Government House Leader on July 29, 2016.

The Agency provided information (including a Statement) on its website in order to help campground operators determine whether they would be eligible for the small business deduction.

In August 29, 2019, the Tax Court of Canada rendered a decision against a taxpayer who appealed the CRA’s reassessment of the small business deduction for their campground for multiple tax years. This decision was made on the basis that the taxpayer carried on a specified investment business during the relevant period, since its principal purpose was to derive income from property. The Court found that the duration of the seasonal and extended seasonal occupancy agreements clearly indicated that the primary purpose of the business was to earn rental income. In addition, the Court determined that the services provided by the taxpayer, including limited event planning, garbage pick-up, office hours and “on-call” availability, did not change the character of this income.

Written question Q-1101

On June 19, 2017, MP Mr. Richards (Banff—Airdrie) tabled an Order Paper question in the House of Commons on this subject. The CRA’s response was tabled on September 18, 2017.

The North American Industry Classification System (NAICS) code used to determine campgrounds, cottages and self-storage is provided by Statistics Canada. Statistics Canada is limited to information provided by surveys and what is included on the tax return. According to Statistics Canada, the NAICS codes are estimated to be 80% correct.

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