Is Cash an Active Business Asset? CRA provides a number of factors to consider.


In a January 25, 2018 Technical Interpretation (2017-0717561E5, Doiron, W.), CRA was asked whether cash held by a corporation would be considered “used in an active business”.

The determination of whether cash or near-cash assets are used in an active business is also a question of fact. CRA offered the following general views:

  • If the withdrawal of the cash or near cash property would destabilize the business, this indicates it is used in the business.

  • Cash which is temporarily surplus to business needs, and is invested in short-term investments, may be considered used in the business.

  • Cash balances which accumulate and then are depleted due to annual seasonal fluctuations of an ongoing business will generally be considered used in the business.

  • permanent cash balance in excess of reasonable working capital requirements would generally not be used in active business.

  • Accumulation of funds in anticipation of purchase or replacement of capital assets, or repayment of long-term debt, will not generally qualify the funds as being used in the business.

  • Prudent financial management requires maintaining current assets (including inventory and accounts receivable, in addition to cash and near-cash assets) in excess of current liabilities, and this could support the use of cash in an active business; however, this would not include cash held to offset the non-current portion of long-term liabilities.

  • Where cash or near-cash assets fulfill a business requirement (e.g. certificates of deposit a supplier requires be maintained), such property would be used in the active business.

CRA stressed that these views were general in nature, and all relevant facts and circumstances must be reviewed for any specific situation, including the actual use of the cash, the nature of the business, and ordinary practice in the particular industry.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 440