Overview of facts
The ARQ reassessed the taxpayer (“Boeckh”) for its 2007 to 2015 taxation years, on the basis that net gains realized in those years were income account gains rather than capital gains. Boeckh was a closely-held investment company whose portfolio (of over $100 million for many of the years) was focused on junior Canadian public companies in the resource and high tech sectors. The Court of Quebec had found that an election which Boeckh had made pursuant to TA s. 250.1 (equivalent to ITA s. 39(4)) was ineffective by virtue of the exclusion under TA s. 250.3(a) (equivalent to ITA s. 39(5)(a)) for a "trader or dealer in securities".
Conclusions
After summarizing the facts (as set out at the bottom of this summary and in rejecting a submission of Boeckh that the interpretation of “trader or dealer” in Vancouver Art Metal should not be adopted for purposes of s. 250.3(a), Mainville JCA stated (at paras. 46, 48, TaxInterpretations translation):
In sum, the words "a trader or dealer in securities" in TA section 250.3 must be interpreted to mean, at a minimum, a person whose profession or business is the purchase and sale of securities. This interpretation is compatible with the ordinary meaning that it is appropriate to accord to the words employed in the text of the provision, as well as being coherent with the object of the TA and the intention of the legislature, which clearly wished to favour a harmonization in this regard between the Quebec and federal tax regimes. An interpretation of TA section 250.3 that differed from that of its federal equivalent in ITA subsection 39(5) would derogate from this legislative objective. …
[I]n tax matters, where the federal and provincial provisions are appreciably in the same form, a presumption of coherence between the two provisions should prevail.
Mainville JCA further found that the Court below had not erred in applying Vancouver Metal Arts to find that Boeckh was a trader or dealer in light of the following findings:
- A qualified investment professional (an experienced CFA) devoted himself full-time to managing Boeckh’s portfolio;
- The portfolio had what was considered to be a high turnover (of around 30%) and there was a high absolute number of transactions.
- Boeckh’s objective was to generate gains rather than dividends, and focused on companies with a high potential for appreciation.
More detailed factual findings
Mainville JCA, earlier in his reasons quoted (at para. 15) the trial judge’s findings that during the three taxation years at issue: the number of securities in which there were transactions ranged from 110 to 46; the percentage of securities which had been held for over two or five years ranged from 31% to 45%, and 14% to 24%, respectively, and many of the other securities had a short-term hold; many of the share sales resulted in only a part disposition of the particular shareholding; and about 30% of the shares were sold each year. As a result, there was almost a complete turnover of the portfolio over four years. Furthermore, “’Boeckh's investment strategy involved identifying highly volatile and undervalued stocks in order to maximize gains based on the expectation, carefully and extensively analyzed, of potential fluctuations’.”
Mainville JCA summarized the facts as follows:
[6] The appellant is a corporation holding a substantial portfolio of shares in small start-up and small-cap companies in key sectors such as oil, gas, mining, and high technology. As part of its activities, it acquires and sells numerous securities to generate profits and grow its portfolio.
[7] The appellant's objectives in managing its portfolio are to grow the Boeckh family's wealth for future generations and to support a foundation. To achieve this, its business strategy involves analyzing the market to identify undervalued companies in high-growth sectors, purchasing the securities of these companies when they align well with its portfolio, and selling them at a profit when the market is favourable or when they no longer meet its holding criteria. The appellant's business strategy results in a constant turnover within its stock portfolio, which means that a significant portion of its portfolio is renewed each year, leading to an almost complete renewal of the portfolio in the medium term. Given this strategy, the appellant's activities generate a very large number of stock market transactions.
[8] To support the achievement of its objectives, the appellant relies on several representatives with extensive experience in buying and selling securities, including Mr. Peter Norris, the appellant's portfolio manager, who works full-time and dedicates a significant portion of his time to conducting in-depth analyses of the companies whose securities he intends to acquire for the appellant, even occasionally visiting certain companies.
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