30 March 1988 Income Tax Severed Letter 5-5542 - [880330]

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.

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C. Higgins (613) 957-2103

MAR 30 1988

Dear Sirs:

This is in reply to your letter of February 10, 1988, requesting our comments on the reporting options available to a taxpayer for tax purposes, with respect to "short sale" and "long sale" security transactions.

Our Comments

It is the Department's position that short sale security transactions are considered an adventure in the nature of trade and as a result are of an income nature. However, a taxpayer can receive capital treatment on such transactions by making an election under subsection 39(4) of the Income Tax Act (the "Act") provided the security is a Canadian security and the taxpayer is not precluded from making the election by virtue of subsection 39(5) of the Act. In this regard, we refer you to the Department's comments in paragraphs 3 to 6 and 18 of Interpretation Bulletin IT-479R (a copy of which is enclosed for your information).

The determination of whether gains/losses arising from "long" transactions in securities represent income or capital gains is a question of fact unless subsection 39(4) of the Act is applicable. Paragraphs 9 to 22 of IT-479R discusses the Department's views on determining whether a security gain or loss is on income account or capital account.

We trust these comments will be of assistance.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch