28 January 2009 External T.I. 2008-0292461E5 - Income/capital treatment - commodity 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.

Principal Issues: A corporation will purchase a commodity. The corporation intends to hold the commodity long-term as an investment. The corporation does not carry on any other business activities. Will the comments in paragraph 7 of IT-346R allow the corporation, as a speculator, to treat any gain or loss on account of capital?

Position: No.

Reasons: While the determination of income or capital treatment is a question of fact the position described in paragraph 7 of IT-346R for speculators is not intended to apply to corporations described in paragraph 5 of IT-346R.

XXXXXXXXXX 							2008-029246
								Michael Cooke, CA
January 28, 2009

Dear XXXXXXXXXX :

Re: Gains and Losses from Commodity Transactions

This is in reply to your letter dated September 5, 2008 concerning the characterization of gains and losses from a corporation's commodity trading activities.

Briefly, in your letter you indicate that a corporation will invest all or substantially all of its assets in a particular resource commodity and there is no intention to resell the commodity in the short-term nor does it have any other business. You ask whether the corporation can treat any gains and losses from its commodity trading activities on account of capital as described in paragraph 7 of Interpretation Bulletin IT-346R Commodities Futures and Certain Commodities.

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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Furthermore, paragraph 15(e) explains that we do not provide rulings when the major issue is whether a transaction should be viewed as being of an income nature or of a capital nature. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.

It is a question of fact as to whether gains or losses from any taxpayer's trading activities are on account of income or capital. However, it is our view that where a corporation's primary, principal, main or only activity is transacting in commodities or other similar commodity based instruments, any resulting gains or losses would be subject to income treatment as described in paragraph 5 of IT-346R. In such circumstances ordinarily gains and losses arising from the commodity transactions would either be income from a business carried on by the corporation or income from an adventure in the nature of trade.

We trust the above comments are of assistance.

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch