Citation: 2011 TCC 542
Date: 20111128
Docket: 2010-959(IT)I
BETWEEN:
USHA KRIPLANI,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Jorré J.
[1]
The only issue in this
appeal is whether a loss of $5,951 in respect of the sale of shares in the 2005
taxation year was on income account, as claimed by the appellant, or on capital
account, as assessed by the respondent.
[2]
For health reasons the
appellant was unable to attend the hearing and was represented by her husband
who also testified.
[3]
During part of 2005 the
appellant was employed on contract by IBM Canada Ltd. as a training coordinator
on a full-time basis, five days a week. It took her about an hour to commute to
work in each direction.
[4]
The appellant knew that
her contract would be terminated in a short while. It is not entirely clear,
but it appears that the contract employment lasted for about four or five
months.
[5]
The appellant’s husband
testified that during 2005 she engaged in a part‑time business trading in
shares in U.S. corporations on her own account and she
incurred a loss which she deducted from other income. She did not seek to trade
on behalf of other people.
[6]
The activity in
relation to shares bore no relation to the appellant’s employment.
[7]
During 2005 there were
19 trades consisting of 17 share sales and two option sales. The appellant also
purchased shares 16 times and purchased one option.
[8]
At least 12 of the
stocks sold were held for relatively short periods ranging from eight days to
just under four months.
It is not clear how long the other stocks sold were held; it appears that two
stocks were held throughout the year without being sold.
[9]
Many but not all of the
stocks were large well-established companies. Among the 18 stocks held in the
course of the year were Coca-Cola, Disney, Johnson & Johnson, Eli Lilly,
McDonald’s, Microsoft, Motorola, Pfizer, Symantec, Tiffany, Time Warner and Walmart.
[10]
The appellant’s husband
also testified that the appellant would read various publications and Internet
sites for information about business and the market. The appellant would also
watch business television and speak to knowledgeable persons to get personal
guidance. The appellant did not have formal training regarding the stock
market.
[11]
It is not clear how
much time the appellant spent on this trading activity.
[12]
The trading account was
a margin account and the evidence does not show whether the appellant in fact
used any credit from the broker.
The appellant did claim of $568 in interest expense in relation to the shares.
This interest expense was incurred on a line of credit.
[13]
The appellant first
acquired shares in 1999. From 1999 to 2005 she had the following number of
share trades and reported the following net result:
|
Year
|
Number of Trades
|
Result Reported
|
|
1999
|
16
|
$14,651 capital gain
|
|
2000
|
34
|
($17,034) capital loss
|
|
2001
|
30
|
$372 capital gain
|
|
2002
|
1
|
$1,405 capital gain
|
|
2003
|
0
|
―
|
|
2004
|
7
|
($5,382) capital loss
|
|
2005
|
19
|
($5,951) other deduction on income account
|
[14]
The position of the
appellant is that she was engaged in a part-time business of trading in shares
in 2005.
[15]
The position of the Minister
is that the shares were an investment and the loss was on capital account.
[16]
Clearly, the level of
activity is modest in terms of transactions. The evidence does not disclose
that the appellant had a particular level of knowledge that was beyond that acquired
by many investors nor does the evidence disclose time spent that would go
beyond that of many investors.
[17]
Some money was borrowed
and therefore there is some degree of leveraging. We do not know how much; there
is nothing in the evidence to suggest that it is high enough to make the stock purchases
clearly speculative in nature.
[18]
It is clear that the
appellant is not in the business of trading securities in the same sense as a
professional stock trader.
[19]
However, one should
also ask whether the appellant’s activities amount to an adventure in the
nature of trade.
[20]
The key in answering
such a question is to know the person’s intention. While stated intention has
some significance, the intention is primarily evaluated by examining the
appellant’s conduct by looking to a variety of factors.
[21]
With respect to this
question the answer is less clear-cut. While the factors I have just described tend to point in
the direction of an investment, there are three other factors that need to be
considered.
[22]
First, most of the
shares bought were of major dividend paying companies. There appears to be a
tendency to view such an asset as somewhat more likely to be an investment
asset.
[23]
Second, a good majority
of the sales involved stocks held for relatively short periods of time, a few
days to four months. By itself, such a pattern is strongly suggested of
transactions on income account given that when shares are held for short
periods of time the only way to make any significant return is by turning the
shares to account and selling them.
[24]
However, this not true
of all the shares.
[25]
Overall, the evidence
relating to 2005 is relatively close to the line.
[26]
Apart from the table
set out above, the evidence provides no real information regarding the share
purchases and sales from 1999 to 2004. In particular, there is no information
as to what may or may not have changed in 2005 as compared to prior years.
[27]
This leads to the third
and final additional factor that needs to be considered.
[28]
In Rajchgot v. The
Queen,
Rip J., as he then was, said:
37 . . . While prior income tax filing
may not be determinative they can be indicative of a taxpayer's intention.
There should be some consistency in reporting share transactions. When a
taxpayer all of a sudden changes from reporting transactions from capital to
income account or from income to capital account there should be some evidence
of the shares' changes in status. . . .
[29]
The Federal Court of
Appeal upheld the decision. Noël J.A. states:
5 A taxpayer who wants to change his reporting status in
circumstances where it becomes more tax efficient to do so bears a heavy onus.
In this case, the Tax Court Judge held that this onus has not been met. . . .
[30]
In the present case,
the appellant has filed from 1999 to 2004 on the basis that share transactions
were on capital account. That is indicative of intention and there is nothing
in the evidence here that would lead to a conclusion that circumstances had
changed in a way that resulted in the 2005 share transactions being on income
account.
[31]
This last factor
clearly tips the overall picture to one where one must conclude that the
transactions were on capital account.
[32]
I regret, but I am
obliged to dismiss the appeal.
Signed at Ottawa, Ontario, this
28th day of November 2011.
“Gaston Jorré”
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