31 July 1998 External T.I. 9816085 - CNIL - INCOME FROM COMMODITY FUTURES.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether income from commodity futures trading would be included in "investment income" for purposes of calculating an individual's CNIL, where the individual is a "speculator."

Position: No, provided the individual is reporting his or her gains or losses from trading as business income or losses and not capital gains or losses.

Reasons: The gain of a speculator is normally considered business income. However, the Department allows speculator to choose between income treatment and capital gain treatment. Where the speculator chooses income treatment, the income does not enter into the calculation of CNIL since, according to the definition of investment income and investment expense, there is no provision to include income from a business.

XXXXXXXXXX 5-981608
J. Gibbons

Attention: XXXXXXXXXX

July 31, 1998

Dear XXXXXXXXXX:

We are replying to your letter of June 17, 1998, in which you inquire whether income from commodity futures trading would be included in “investment income” for purposes of calculating a taxpayer’s cumulative net investment loss (“CNIL”) as defined in subsection 110.6(1) of the Income Tax Act (the “Act”). According to your letter, the taxpayer is a speculator, as defined in paragraph 6 of Interpretation Bulletin IT-346R, “Commodity Futures and Certain Commodities.”

As regards the income of a speculator, the Courts have long established that trading in commodity futures or commodities is either a business or considered to be an adventure or concern in the nature of trade. Therefore, trading in commodity futures or commodities is considered income from a business in all cases since the definition of “business” in section 248 of the Act includes an “adventure or concern in the nature of trade.” However, as you are aware, the Department allows taxpayers to report their gains and losses from transactions in commodity futures or in commodities as capital gains and losses, provided this reporting practice is followed consistently from year to year. In this regard, we refer you to paragraph 7 of IT-346R.

According to its definition under subsection 110.6(1) of the Act, the “cumulative net investment loss” (“CNIL”) of an individual is defined as the excess of the individual’s “investment expenses” after 1987 over the individual’s “investment income” after 1987.

Under the definition of these latter terms in subsection 110.6(1) of the Act, there is no provision to include income from a business. Accordingly, where an individual reports gains and losses from transactions in commodity futures as business income, such income would not enter into the calculation of the individual’s CNIL.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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