Under the current Income Tax Act, a corporation must meet certain requirements in order to be eligible for the Small Business Tax Deduction. The Small Business Tax Deduction ("SBD") is available to most small business corporations and has a combined Federal and Provincial tax rate of about 15%.
The SBD is not available however to any corporation that carries on as a "specified investment business" if CRA deems that the business has a principal purpose to earn income such as interest, dividends, rents and royalties from real or immovable property which if you can believe, Private Campgrounds currently fall within. One exception to this rule, is if the Private Campground employs more than five full-time employees in the business throughout the year. However with campgrounds operating on average for only 152 days in a calendar year, it is not financially realistic to operate with full-time workers at a time their operation is closed just to meet this minimum threshold requirement to qualify for the SBD.
However, as the Income Tax Act is written today, CRA may consider a Private Campground employing less than 5 Full Time employees throughout the year eligible for the small business tax deduction if they are able to prove that they provide the sufficient level of services and amenities necessary to the success of its business operations, . The problem with this is that this review is solely in CRA's determination, done arbitrary and with criteria completely unclear to our industry.
Although the tax rules have remain unchanged in decades, CRA began to change its interpretation by the Liberals in 2016 and a number of campgrounds were denied the Small Business Tax Deduction and re-assessed at a retroactive tax rate that equated to 300% higher than the Small Business Rate.
The vast majority of campgrounds have invested significant infrastructure costs including water treatment systems, sewage and septic systems, electrical infrastructure, amongst others, that have improved their land use. While most private campgrounds generally provide the necessary services/activities which have been listed as deciding factors in determining if a “specified investment business” is deemed “active” by the CRA: laundromat, snack bar and/or restaurant, washroom, showers, swimming pool, beach area, playground, recreation centre, WiFi, propane, organized activities, ect. on record to qualify for the Small Business Tax Rate, owners are still required to confirm their assessment annually with the Canada Revenue Agency.
Our unclear tax distinction is adversely affecting the Camping and RV industry’s growth prospects and the threat could lead to campground closings and of equal concern, restrict much needed improvements for the industry to remain competitive and attract foreign visitors. If left as is, this will harm the entire industry ultimately leading to: reduced number of campgrounds available for domestic and international tourism, loss of jobs throughout the industry, substantial loss of tax income to all levels of Government, and diminished economic benefits in small communities across the country. Currently the RV and Camping Industry need more campgrounds and campsites and we cannot possibly afford to lose more destinations necessary to facilitate the growth in the RV and Camping Lifestyle.
We are asking for your support before the next tax year begins to give the families that have poured their hearts and life savings into their campground the tax certainty they need to continue growing our tourism and economy.
Please help us by sending an email to your MP that endorses a clear and definitive tax regime for campgrounds.