3 March 1994 Internal T.I. 9404286 - ADVENTURE IN THE NATURE OF TRADE -- FISCAL PERIOD

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.

		March 3, 1994

John ChanBusiness and General
A/Chief  Division
	Resource Industries Section	J.D. Brooks

940428

Adventure or Concern in the Nature of Trade

This is in reply to your referral of a question from the Pentiction D.O. requesting our view as to whether a taxpayer who engaged in an adventure or concern in the nature of trade may report his gains from the adventure on a fiscal period basis or whether he must report on the calendar year basis. The general question was raised with the following specific scenario in mind:

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Our Comments

Although an adventure or concern in the nature of trade is included in the definition of "business" in subsection 248(1) of the Income Tax Act (the "Act"), it is a question of fact, to be determined after a review of all the relevant facts, whether an adventure or concern in the nature of trade constitutes the carrying on of a business. In the specific example you provided, the taxpayer is involved in the construction of a residence and it therefore seems that he would be considered to be carrying on a "business", albeit an adventure in the nature of trade. Where an individual is a proprietor of a business, subsection 11(1) of the Act deems his income from a business for a taxation year to be his income from the business for the fiscal period or periods ending in the year. Pursuant to subsection 248(l) of the Act, the fiscal period for a taxpayer's business is "the period for which the accounts of the business of the taxpayer have been ordinarily made up and accepted for purposes of assessment under the Act and, in the absence of an established practice, the fiscal period is that adopted by the taxpayer..."

If we can presume that the taxpayer could establish a fiscal period at, say, the time he enters into his adventure (although this matter is not free from doubt), then that first fiscal period would normally terminate prematurely on the disposition of the property held in the adventure since it would result in a disposition of the business. Of course, this presumes that there is only one property held in this particular adventure. If there were more than one property, it would be a question of fact whether the properties were held in the same adventure or as separate adventures. Where the fiscal period ends prematurely by virtue of the business being disposed of, subsection 25(1) provides for the proprietor of the business who is an individual electing to deem the fiscal period to end at the time it would have ended if he had not disposed of the business. We note that there is no stated procedure or time requirement for making this election. Until an election is filed, subsection 25(1) is of no effect. In the situation you presented, the taxpayer would have unreported income in 1992 unless he had filed a subsection 25(1) election. However, when the election is filed, and presumably it must be filed within the time period for reassessing the 1992 return, it appears that the Department must generally accept it (just as it would have to accept a subsection 28(1) election, which reads similarly) unless subsection 25(2) is operative.

On the other hand, in a situation where an individual is considered to be engaged in an adventure or concern in the nature of trade but such activity is limited to an isolated transaction, the trading gain which results should be included in the taxpayer's income for the calendar year in which the trading gain occurs since subsection 249(l) of the Act defines the taxation year of an individual to be a calendar year.

R. Albert
for Director
Business and General Division
Rulings Directorate