7 May 2001 External T.I. 2001-0076805 - SECURITIES TRANSACTIONS

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 an individual who buys and sells securities is carrying on a business with respect to those activities.

Position: General comments consistent with those in IT-479R were provided.

Reasons: Only limited information was provided and the issue involves a question of fact.

XXXXXXXXXX  								2001-007680
M. Eisner, CA
May 7, 2001

Dear XXXXXXXXXX:

Re: Securities Transactions

We are writing in reply to your letter of March 19, 2001, which was forwarded to us for reply by the Ottawa Tax Services Office. You requested our comments on whether or not you are carrying on a business with respect to securities transactions.

We understand that you ceased to be employed by a bank on XXXXXXXXXX in order to pursue stock trading activities. From the time you ceased to be employed to the end of the year 2000, you indicated that your trading activities consisted of approximately XXXXXXXXXX trades. However, with improved trading equipment, you now trade at least a couple of times a day and you expect to expand to five to eight trades a day within a month or two. You indicate that since XXXXXXXXXX, your trading activities in securities has been your only source of income and that when you buy a stock, your intention is to sell it quickly in order to generate income rather than hold it as an investment.

You have asked whether you are carrying on a business with respect to your stock trading activities and whether you were carrying on business with respect to stocks sold on or before XXXXXXXXXX.

Our Comments

As requested, we have considered your situation and have provided some comments below. It should be noted, however, that written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001. Thus, our comments are of a general nature only.

For your reference, we have enclosed a copy of Interpretation Bulletin IT-479R “Transactions in Securities” which generally discusses the tax treatment of securities transactions. As indicated in paragraph 10 of the bulletin, if an individual’s course of conduct indicates that in securities transactions, the individual is disposing of securities in a way capable of producing gains, with that object in view, and the transactions are of the same kind and carried on in the same fashion as a trader or dealer or dealer in securities, the individual would generally be considered to be carrying on a business with respect to his or her securities transactions. In addition, as explained in paragraph 12 of this bulletin, the term “business” includes “an adventure or concern in the nature of trade”, which the courts have held can include an isolated transaction in shares where the “course of conduct” and “intention” clearly indicate it to be such. Some of the factors to be considered in ascertaining whether a taxpayer’s conduct indicates the carrying on of a business are listed in paragraph 11 of Interpretation Bulletin IT-479R and are as follows:

a) frequency of transactions - a history of extensive buying and selling of securities or a quick turnover,

b) period of ownership - securities are usually owned for only a short period of time,

c) knowledge of the securities market - the taxpayer has some knowledge of or experience in the securities markets,

d) security transactions form a part of the taxpayer’s ordinary business,

e) time spent - a substantial part of the taxpayer’s time is spent studying the securities market and investigating potential purchases,

f) financing - security purchases are financed primarily on margin or some form of debt,

g) advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.

Consistent with the above comments, the determination of whether particular transactions in respect of securities result in business income (or losses) or are on account of capital is, therefore, a question of fact, regardless of whether the transactions occurred before or after you ceased your employment.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch