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 is available to a small business corporation 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. One exception to this rule, is if the corporation 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 and maintain seasonal part-time workers full-time just to meet this minimum threshold requirement to qualify for the SBD.
However, as written, if a corporation carrying on a campground business which does not employ more than five full-time employees throughout the year but does provide significant additional services that are integral to the success of its business operations, CRA may consider it eligible for the small business tax deduction. The problem with this is that it is solely to CRA's determination, is arbitrary and unclear to our industry.
Although the tax rules have remain unchanged in decades, CRA began to change its interpretation in 2016 and a number of campgrounds were denied the Small Business Tax Deduction and re-assessed at a retroactive tax rate of nearly 50% in a small business compliance test which has now caused uncertainty amongst the Camping Industry.
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 to that of a campground which should be considered to be a dividing factor from the perception of some as just collecting “rent” from a “farmer’s field”. Moreover, private campgrounds generally provide several of the 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, and many more.
Campgrounds are considered as recreational facilities offering the traveling and vacationing public access to campsites on a defined overnight and seasonal basis. Unlike permanent residence land properties like apartment buildings and mobile home parks (accurately interpreted by CRA as a "specified investment business") for example, campgrounds do not offer tenants principal/permanent occupancy. Private campgrounds do not charge “rent” or “royalties” or “dividends” as described in the definition of a “specified investment business”, but rather overnight campsite and amenity/service fees to temporary and seasonal camping enthusiasts.
Despite the robust figures which indicate that the camping industry makes a significant contribution to tourism and the Canadian economy, the current misclassification of campgrounds as a “specified investment business” as opposed to an “active business” could result in potentially hundreds of campground closings if private campgrounds are deemed ineligible by the Canada Revenue Agency for the small business tax deduction (SBD) despite having qualified for the SBD for several decades. If this should occur, Canadian tourism and the Canadian economy in rural regions across the country will be adversely impacted the most with campground closings and severe job losses throughout.
CRA’s 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 needed improvements for the industry to remain competitive and attract foreign visitors which may be no longer affordable. 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 needs more campgrounds and we cannot possibly afford to lose camp sites that are necessary to facilitate the growth in the RV and Camping Lifestyle.
changes must be made before the next tax year begins to give the families that have poured their hearts and life savings into Canadian campgrounds the certainty they need to continue growing our rural and northern tourism opportunities.
Please help the Canadian Camping Industry by sending an email to your MP that endorses a clear and definitive tax regime for campgrounds.