In Rocco Gagliese Productions Inc. v R, 2018 TCC 136, the corporate taxpayer employed an individual who wrote and recorded music on an active and continuous basis. The taxpayer received royalty income from SOCAN for this work. The CRA took the position that the “legal character” of the income (royalties) meant that the taxpayer was carrying on a “specified investment business” for the purposes of the small business deduction provisions. The Tax Court disagreed. It held that the principal purpose of the taxpayer’s business was to earn income from writing and recording music. See D Morrison, “Specified Investment Business Income Does Not Include Royalties” 18:4 Tax for the Owner-Manager (October 18, 2018).
Postscript 2019 07 16 Apparently, the CRA accepts this decision as it applied to the facts before the Court. 2019 STEP CRA Roundtable, Q.7.