Georges Girard Inc v. Minister of National Revenue, [1976] CTC 2157, [1976] DTC 1128

The Chairman:—The appeal of Georges Girard Inc against tax assessments for the 1963, 1964 and 1965 taxation years was heard in Montreal, Quebec on January 15, 1976.

The issue in this case is whether the profit made by the appellant on the sale of securities during each of the taxation years constitutes capital gain or income from the business of trading in such commodities.

According to the testimony of Mr Georges Girard, president and majority shareholder of Georges Girard Inc, the appellant was incorporated on September 17, 1957 to carry on an insurance brokerage business. He also testified that, in addition to the insurance business, the appellant made what Mr Girard described as “investments” in the form of mortgage loans or in the field of securities, and he contended that the profit from the sale of these securities is of a capital nature.

In support of his contention, Mr Girard claimed that the appellant was never authorized by its charter to carry on and has in fact never carried on, a stock brokerage business.

Counsel for the respondent maintained that the appellant and Mr Georges Girard, president and majority shareholder of the appellant, carried on the business of trading in securities, adding that the nature and frequency of the stock transactions in which the appellant engaged during the years in question in this appeal are equivalent to those of a trader or promoter in the same commodities.

The decision in this case clearly depends principally on the interpretation of these facts.

I am satisfied from the evidence that the appellant carried on an insurance brokerage business. The financial statements show that the appellant made net profits of $11,577.87, $14,273.66 and $11,170.22 from its insurance business in each of the years 1963, 1964 and 1965, respectively. The salary paid by the appellant to its shareholding president, Mr Girard, was $9,947.10, $10,797.73 and $11,310.58 for each of those years, respectively. Thus far no problem arises.

However, the appellant’s profit from share transactions was $57,506.50 in 1963, $119,618.25 in 1964 and $19,895.04 in 1965.

Although the appellant was carrying on an insurance business, its receipts show a great deal more activity in trading in shares of stock, especially mining stock, than in the sale of insurance policies.

Although its charter does not authorize it to carry on a stock- brokerage business, in my opinion that would not prevent the appellant from buying and reselling securities at whatever rate it wished. It is the nature and frequency of these transactions as a whole which will! determine whether they were what is generally meant by “investments” or whether they constituted a trade in securities. The courts have held many times that the important point in such cases is not the wording of a corporaion’s charter but the type of activity the taxpayer has in fact been carrying on. In my opinion the facts in this case show quite clearly, by the volume and size of the profits realized, that the appellant was deeply involved in the short-term buying and selling of mining stock in such a manner and with such frequency that it is impossible to consider its transactions as long-term investments.

Furthermore, the evidence shows that Mr Georges Girard, whose appeal was heard at the same time as that of the appellant, used the latter as a vehicle by which he carried out certain of his own numerous transactions in securities.

I must therefore conclude that the appellant’s stock dealings cannot be considered investments. In my view, they have all the characteristics of commercial transactions, and the Minister is right in considering the profits made from these transactions in the 1963, 1964 and 1965 taxation years as income from a commercial undertaking, and therefore taxable under the provisions of sections 3 and 4 and paragraph 139(1)(e), RSC 1952, c 148, and section 3 and subsection 9(1), SC 1970-71-72, c 63 of the Income Tax Act.

Nevertheless, it is perhaps pertinent in the circumstances of this case to add that, since the profits made by the appellant have been held to be taxable as business income, it follows that all losses subsequently suffered by the appellant and arising out of similar transactions should also be considered by the respondent as business losses, and the appellant should be allowed all deductions of pertinent losses to which it is entitled under the provisions of the Income Tax Act. Thus the respondent has carried the losses suffered in 1966 back to the 1965 taxation year by deducting these losses from the profits made by the appellant in 1965.

For these reasons, therefore, I must dismiss the appeal.

Appeal dismissed.