Friesen v. The Queen, 95 DTC 492, [1995] 1 CTC 2560 (TCC)

Bell J.T.C.C.:-The issue in this appeal is whether the amount of $38,220 claimed as a loss by the appellant in respect of his 1988 taxation year and the amount of $157,265.47 claimed by the appellant as a loss in respect of his 1989 taxation year are losses on income account or on capital account. If the losses are on income account the result will be that some amounts in excess Qf the amounts allowed by the Minister of National Revenue ("Minister”) in respect of the appellant’s 1985, 1986 and 1990 taxation years will be deductible in those years.

The appellant, in spite of the substantial amounts involved and the nature of the argument sought to be made, was unrepresented. His notice of appeal was barely comprehensible and that simply set the stage for the manner in which he conducted his case. Had it not been for the reply to the notice of appeal and the assistance from respondent’s counsel the Court may never have defined the issue. Unfortunately, the appellant’s lack of appreciating court process, even when explained to him repeatedly, and his insistence on clinging to matters irrelevant to the appeal, extended the hearing time far beyond the time it would have taken competent counsel to present the case.

A laborious distillation of the rambling and often irrelevant testimony permits me to make a reasonably abbreviated statement of facts and conclusions.

The appellant filed Exhibit A-1 which was a record of his 1988 commodity trades, Exhibit A-2 which was a record of his 1989 commodity trades and Exhibit A-3 which was a record of his 1987 commodity trades. He also filed Exhibit A-4 which was entitled "summary of dispositions of capital property in 1987". This document, presumably being his copy of the identical document filed with his 1987 income tax return showed the sum of $8,032.29 as "Richardson commodity stock" under the capital gains portion thereof. His evidence-in-chief produced nothing relevant other than the aforesaid documents.

On cross-examination, the appellant stated that the inclusion of the aforesaid sum of $8,032.29 on the summary of dispositions of capital property in 1987 was a mistake. Counsel asked a lengthy series of questions respecting the reason why the appellant filed this amount as a capital gain. She also, in reference to Exhibits A-l, A-2 and A-3 which described the commodities traded by the appellant, examined the appellant in detail. He stated that he did not operate any retail enterprise related to soya bean products, that he never took delivery of any lumber and that he had no business enterprise related to pork bellies. The appellant stated that he had traded 13 times in commodities in 1987 between May 7 and October 8 of that year. Exhibit A-3 shows the volumes of pork belly as 40,000 pounds in each of four transactions and 80,000 pounds in each of two additional transactions. It also shows seven transactions each consisting of 5,000 bushels or 10,000 bushels of flax. The trades were made up of both short and long contracts for a total dollar value of $466,410 in 1987.

Exhibit A-l shows 34 trades in 1988 including seven pork belly trades ranging from 80,000 to 320,000 pounds, four lumber trades, three of which were for 480,000 board feet each and one for 960,000 board feet and also sugar and rape seed transactions. The total dollar value of the 1988 transactions was $2,219,017, such transactions including both short and long sales. Exhibit A-2 shows 19 trades for the 1989 taxation year in pork bellies, sugar, lumber and soya beans on both short and long contracts for a total value of $2,343,467.

The appellant stated that he had about 200 faxes from brokers indicating how they try to keep him informed and that he sometimes received many faxes before deciding to buy contracts. He also stated that he sold first and bought back later. He testified that he did independent market research by reading materials and that he was registered with the Chicago Board of Trade and in Winnipeg.

The appellant read materials respecting the indicia of capital gain or income during his argument. Respondent referred to a number of cases in an attempt to ally their fact situation to that of the appellant. Her contention was that the appellant had filed in 1987 showing the sum of $8,032.29, being profit from commodity transactions, as capital gain because he wanted to minimize the tax thereon and then claimed the 1988 and 1989 losses as non-capital losses in order to maximize his tax deduction. She stated that he relied upon information he received from brokers, did not provide any evidence as to how the trading of lumber features related to the operation of a lumber yard business conducted by him, etc.

I have no difficulty in concluding that the appellant should be successful in his appeal. The number of trade transactions in 1988 and 1989 and the nature of the subject matter of those transactions persuade me that these activities were On income account. I am not influenced by the fact that he included a small amount of profit as a capital gain in his 1987 income tax return. In addition, the amount of money involved in respect of each transaction was substantial and the total amount of money involved was very substantial.

With respect to the capital gains inclusion in 1987, it is clear that the manner in which a taxpayer reports a profit does not determine the nature of that profit. Whether the appellant sought to minimize his tax by including same in income as a capital gain does not persuade me that the activities conducted by him in the commodities market in subsequent years were not on income account.

Accordingly, the appeal is allowed so that the loss of $38,220 claimed in respect of the appellant’s 1988 taxation year and the loss in the amount of $157,265.47 claimed in respect of the appellant’s 1989 taxation year are deductible and so that the appropriate amounts of such losses are applied to the appellant’s 1985, 1986 and 1990 taxation years.

Appeal allowed.