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: Whether an individual who trades in stock index futures every day and the trades constitute a major source of income for the person is taxed on account of income or capital.
Position: Income.
Reasons: Common law; IT-346R and IT-479 were drafted before trading in stock index futures became more common.
XXXXXXXXXX 2004-010116
Denise Dalphy, LL.B.
January 12, 2005 (613) 941-1722
Dear XXXXXXXXXX:
Re: Trading in Stock Index Futures
We are writing in reply to your letter of October 27, 2004 wherein you requested an opinion on the income tax treatment of trading in stock index futures. In particular, you ask whether your trading (as an individual who makes trades every day and where they constitute the major source of income) in stock index futures which are listed and traded in countries other than Canada will be taxable on income or capital account.
Written confirmation of the consequences inherent in particular transactions are 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 70-6R5. Nonetheless, we shall provide some comments of a general nature.
It is our understanding that the Chicago Mercantile Exchange launched its first stock index futures contract in 1982. Neither Interpretation Bulletin IT-346R, Commodity Futures and Trading in Certain Commodities, dated November 20, 1978, nor Interpretation Bulletin IT-479, Transactions in Securities, dated February 29, 1984 address trading in stock index futures.
Trading in stock option futures would normally be taxed on income account, unless, for example, it relates to the acquisition of capital. Generally, an individual who makes trades in stock index futures every day, particularly where those trades constitute the major source of income to that individual, will be taxed on the profit therefore on income account.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
Steve Tevlin
Manager
Corporate Financing Section
Financial Industries Division
Income Tax Rulings Directorate
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