How The CRA’s New Assessing Position Can Reduce Your FAPI

The Income Tax Act (Canada) contains a foreign accrual property income (FAPI) regime that imputes "passive income" earned by a non-resident corporation (a controlled foreign affiliate) to its Canadian-resident controlling shareholders on an annual accrual basis, whether or not such income is distributed to the non-resident corporation's shareholders. Passive income earned by a controlled foreign affiliate includes income derived from an "investment business." Generally, an "investment business" will be any business that is carried on in a taxation year by a controlled foreign affiliate, the principal purpose of which is to derive income from property and other specified sources. However, such a business will not be an "investment business" if it can be established that ─ amongst other things ─ the controlled foreign affiliate, throughout the period during which the business is carried on, employs "more than five employees full time" (or the equivalent thereof provided