30 June 2000 External T.I. 1999-0014825 - Sale of sand

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: Is the sale of sand from a t|p's property on income or capital account?

Position: Question of fact.

Reasons: If sale constitutes business income or sales are contingent on the quantity of material taken and the application to that of some rate or standard such as price per ton.

1999-001482
XXXXXXXXXX S. Tevlin
(613) 957-2093
Attention: XXXXXXXXXX

June 30, 2000

Dear Sirs:

Re: Capital Gains v. Income

We are writing in response to your letter dated December 14, 1999 wherein you asked for our comments with respect to whether certain amounts received by a taxpayer are on income account or can be considered received as a capital gain.

The situation described in your letter involves an actual fact situation of a specific taxpayer. Written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3 ("IC-70-6R3"), dated December 30, 1996. For a completed transaction, you should submit all relevant facts and documentation to your local tax services office for their views.

However, we are prepared to offer the following general comments.

We refer you the Canada Customs Revenue Agency (the "CCRA") comments in Interpretation Bulletin IT-423 ("IT-423") entitled Sale of sand, gravel or topsoil. Paragraph 1 of IT-423 states, "the sale of sand, gravel and topsoil and similar substances as well as sod (hereinafter referred to as earth substances) is considered to be income of a taxpayer where:

(a) Paragraph 12(1)(g) of the Income Tax Act is applicable because amounts received are considered to be dependent upon the use of or production from property when they are contingent on the quantity of material taken and the application to that of some rate or standard (such as price per ton or per cubic yard).

(b) The sale constitutes business income.

For a sale to be treated as income it is only necessary to establish that one of the above-mentioned criteria apply, although in many cases both of them will apply."

Income for a taxation year from a business is the profit therefrom for the year. The concept of profit is critical in determining whether an activity or undertaking constitutes the carrying on of a business. Generally, any undertaking or activity that results in profits or has a reasonable prospect of profits would be viewed as the carrying on of a business. On the other hand, where the activity or undertaking has no reasonable expectation of producing profits, a business would not be considered to have been carried on and any losses that resulted would not be deductible for income tax purposes.

Whether or not a business has a reasonable expectation of profit is an objective determination to be made from all the facts. The relevant factors to be considered in making such a determination will differ with the nature and extent of the activity or undertaking. Some of the factors which may be relevant in determining whether or not a business has a reasonable expectation of profit include:

• the amount of time devoted to the activity or undertaking,
• the amount of revenue from the activity or undertaking,
• the type of expenditures claimed and their relevance to the business,
• a business plan relating to growth, promotion, etc.

No particular factor described above is more important than another and no one factor determines whether or not an activity is a business carried on for profit or with a reasonable expectation of profit. All relevant criteria are considered together in making a determination and failure to meet any one particular factor will not in itself preclude the activities from qualifying as a business.

Whether the profit from the sale of earth substances is income from a business or a capital receipt is a question of fact dependent upon the circumstances in a specific case.

A business is defined in subsection 248(1) of the Act to include an adventure or concern in the nature of trade. Certain principle tests have been applied by the courts in the determination whether a particular transaction is an adventure or concern in the nature of trade. These tests are described in Interpretation Bulletin IT-459 entitled Adventure or concern in the nature of trade.

The forgoing comments are given in accordance with the practice referred to in paragraph 21 of IC-70-6R3, and are not binding on the CCRA.

We trust our comments will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Enclosure