Citation: 2008TCC217
Date: 20080428
Docket: 2007-3116(IT)I
BETWEEN:
JOSEPH AZRAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
The issue in question
is relatively simple: whether the Appellant could deduct his losses from the
disposition of publicly traded shares as business losses in calculating his
income. Were they business losses or capital losses?
[2]
When he produced his
tax returns, the Appellant deducted business losses of $23,840 for the 2003
taxation year and $29,671 for the 2004 taxation year.
[3]
By notices of
reassessment dated December 18, 2006, the Minister of National Revenue (the
"Minister") cancelled the business losses deducted for the 2003 and
2004 taxation years and recorded a capital loss of $23, 840 in the Appellant's
file for the 2003 taxation year, and $23,417 for the 2004 taxation year.
[4]
On or around February
2, 2007, the Appellant filed a Notice of Objection to the Ministers against the
December 18, 2006, reassessments for the 2003 and 2004 taxation years.
[5]
On June 20, 2007, the
Minister confirmed the December 18, 2006, reassessments for the 2003 and 2004
taxation years.
[6]
On July 3, 2007, the
Appellant appealed to the Court to have the December 18, 2006,
reassessments vacated, for the 2003 and 2004 taxation years.
[7]
To establish and
confirm the reassessments for the 2003 and 2004 taxation years, the Minister
relied on the same hypotheses, namely:
[translation]
(a)
During the years in
question, the Appellant had a job with the company Hani Autos Inc; (admitted)
(b)
His employment income
was $52,850 for the 2003 taxation year and $79,875 for the 2004
taxation year; (admitted)
(c)
The Appellant did not
have professional training in the securities field; (denied)
(d)
During the 2003
taxation year, the Appellant performed three security transactions, which
resulted in a loss of $23,839; (denied)
(e)
During the 2004
taxation year, the Appellant performed 15 security transactions, which resulted
in a loss of $23,417; (admitted)
(f)
During the 2000
taxation year, the Appellant made a profit during the disposition of securities
and this profit was assessed by the Respondent as a capital gain. (admitted)
[8]
The purchase and sale
of shares the Appellant carried out and their price, dates of purchase and sale
for 2000 are described at Schedule "A", attached to these Reasons.
[9]
The purchase and sale
of shares the Appellant carried out and their price, dates of purchase and sale
for 2001 are described at Schedule "B", attached to these Reasons.
[10]
The purchase and sale
of shares the Appellant carried out and their price, dates of purchase and sale
for 2002 are described at Schedule "C", attached to these Reasons.
[11]
The purchase and sale
of shares the Appellant carried out and their price, dates of purchase and sale
for 2003 are described at Schedule "D", attached to these Reasons.
[12]
The purchase and sale
of shares the Appellant carried out and their price, dates of purchase and sale
for 2004 are described at Schedule "E", attached to these Reasons.
[13]
The evidence shows that
the Appellant purchased publicly traded shares for $188,071; $408,584;
$188,346; $44,671 and $117,016 in 2000, 2001, 2002, 2003 and 2004,
respectively. The evidence also shows that the Appellant sold publicly traded
shares for $200,623; $414,143; $159,761; $19,522 and $93,040 in 2000,
2001, 2002, 2003 and 2004, respectively.
[14]
The Appellant testified
that:
(a)
he worked as an
employee in 2003 and 2004, around 40 hours a week;
(b)
during the years in
question, he and members of his family spent around 80 hours a week doing
market studies on securities and researching potential purchases;
(c)
during the 2000 and
2001 taxation years, he made a profit of $12,589 and $8,393, respectively, through
the disposition of publicly traded shares; he treated these profits as capital
gains in his tax returns for those years;
(d)
during the 2002
taxation year he had a loss of $28,586 through the disposition of publicly
traded shares; he treated these losses as capital losses in his tax return that
year;
(e)
in 1999, he actively
operated a jewellery purchase and sale company and a stock market investment
company. On April 26, 1999, as a natural person operating an individual
business, the Appellant produced a certificate of registration
(Exhibit A-3) indicating he operated these two businesses. The Appellant
explained that in 2000 he stopped actively operating his stock market
investment business because the publicly traded shares were "at their peak"
and that was why he submitted a deregistration certificate for his investment
business (Exhibit A-6) to the Inspecteur général des institutions
financières on June 4, 2000. The Appellant added that he started to actively
operate his investment business again in December 2003 and that was why he
again submitted a registration certificate in April 2004 (Exhibit A-11) stating
that he had again begun operating his investment business.
[15]
I would point out that
the Appellant's overall testimony did not mention his knowledge and training in
the securities field, his investment strategy and research tools.
Appellant's position
[16]
The Appellant claimed
that profits and losses in 2000, 2001 and 2002 from the disposition of publicly
traded shares during those years were treated as capital gains and losses
because he did not operate the investment business during those years as shown
by the registration statement he produced. Moreover, he claims that the losses
in 2003 and 2004 from the provision of these publicly traded shares in those
same years were considered as business gains and losses because he operated an
investment business during those years as shown by the registration statement
he produced.
Analysis and conclusion
[17]
In general, the result
of an operation is a capital gain (or a loss) insomuch as there is
investment-related accounting, meaning when there is a disposition of property
acquired for financial return (to draw income from property or a business) or
even for personal purposes. On the contrary, the result of an operation is
considered a business income (or loss) when the operation is related to a
business concept, speculation or a commercial business or project.
[18]
With no definitions in
the legislation, the courts have had to develop several criteria in an effort
to characterize a gain or loss resulting from specific work. However, no
criterion taken in isolation is necessarily sufficient or determinative and
that, in each case, all the circumstances of the operation must be examined.
The criteria or factors most often used include the following:
(i)
the taxpayer's true
intention as shown by the taxpayer's conduct and the circumstances in which the
transactions occurred;
(ii)
the time between the
purchase and the sale;
(iii)
the frequency of
transactions (history of extensive buying and selling of securities);
(iv)
the nature of the
securities (whether are they speculative);
(v)
whether the
transactions are of the same kind or carried out in the same way as those of a
dealer in securities. In this sense, does the taxpayer spend a substantial part
of his or her time studying the securities markets and investigating potential
purchases? Are security purchases financed primarily on margin or by some other
form of debt?
[19]
The Appellant must
first understand that producing a registration statement that he operates an
investment business does not ensure that the profits and losses from the
disposition of securities in a given year are, for the purposes of the Act,
business profits or losses during that year. The registration statement is an
element that enters into our analysis; however, I feel that this element is not
a determinative one. The Appellant's producing statements of registration
indicating he operated an investment business in 1999, 2003 and 2004 and that
he stopped operating this business in 2000, 2001 and 2002 is even less
determinative in this case since there were more operations and their monetary
value was higher in the years the statement of registration indicates he
stopped operating his investment business.
[20]
The Appellant purchased
publicly traded shares (as thousands of Canadians do) to make a profit.
However, nothing in the evidence submitted indicates that the Appellant's
transactions fit within the concept of business, trade, speculation or a
commercial matter or project. In this case, the securities transactions
were not speculative. There were few operations (no purchases in 2003, 14 in
2004, one sale in 2003, and 12 sales in 2004). The shares sold in 2003 had been
held for around two years. The fact that the period of detention for shares was
generally shorter in 2004 is not determinative as to the nature of the
Appellant's losses. The Appellant did not submit any evidence that his
operations were similar to those of a dealer and that they were carried out in
the same way.
[21]
For these reasons, the
appeal is dismissed.
Signed at Ottawa,
Canada, this 28th day of April 2008.
"Paul Bédard"
Translation
certified true
on this 4th day of
June 2008.
Elizabeth Tan,
Translator
SCHEDULE "A"
I.
2000 REPORT
|
DATE OF PURCHASE
|
TITLE
|
SHARES
|
PURCHASE
|
DATE OF SALE
|
SALE
|
PROFIT
|
LOSS
|
|
30 NOV 00
|
BBD,B
|
500
|
11485.50
|
08 DEC 00
|
11970.50
|
485.00
|
|
|
18 SEP 00
|
INVT
|
1450
|
2210.27
|
19 SEP 00
|
3168.07
|
957.80 CA
|
|
|
02 NOV 00
|
INVT
|
4000
|
3331.60
|
08 NOV 00
|
3777.45
|
445.85 US
|
|
|
04 OCT 00
|
LU
|
450
|
13754.35
|
11 OCT 00
|
14932.65
|
1178.30 US
|
|
|
30 OCT 00
|
LU
|
700
|
14160.60
|
03 NOV 00
|
15840.11
|
1679.51 US
|
|
|
08 NOV 00
|
WCOM
|
800
|
14329
|
08 NOV 00
|
14470.16
|
140.81 US
|
|
|
14 NOV 00
|
WCOM
|
1000
|
16279.35
|
17 NOV 00
|
16970.08
|
690.73 US
|
|
|
24 NOV 00
|
WCOM
|
1250
|
19172.85
|
6 DEC 00
|
20273.97
|
1101.12 US
|
|
|
8 DEC 00
|
WCOM
|
1250
|
18319.10
|
11 DEC 00
|
19336.50
|
1017.40 US
|
|
|
12 DEC 00
|
WCOM
|
1250
|
18475.35
|
14 DEC 00
|
19727.92 US
|
1251.77 US
|
|
|
TOTAL
TOTAL
|
CANADIAN
US
|
|
EXCHANGE RATE 1.4852 x
|
1442.80 CA
7505.49 US
|
|
|
TOTAL
|
IN CANADIAN
|
12589.95
|
|
|
Symbols
|
Companies
|
Activities
|
|
BBD,B
|
Bombardier
|
Aeronautics
|
|
INVT
|
InvestAmerica
|
Telecommunications
network
|
|
LU
|
Lucent
Technologies
|
Telecommunications
|
|
WCOM
|
Worldcom
|
Telephony and
telecommunications
|
SCHEDULE "B"
I.
2001 REPORT
|
DATE OF PURCHASE
|
TITLE
|
SHARES
|
PURCHASE
|
DATE OF SALE
|
SALE
|
PROFIT
|
LOSS
|
|
20 DEC 00
|
BBD,B
|
520
|
11703.50
|
02 JAN 01
|
12216.50
|
513.00
|
|
|
05 JAN 01
|
BBD,B
|
550
|
12129.5
|
22 JAN 01
|
12730.5
|
601
|
|
|
8 MAR 01
|
BBD,B
|
650
|
12932
|
08 MAR 01
|
13039.50
|
103.5
|
|
|
27 SEP 01
|
BBD,B
|
1000
|
13479
|
27 SEP 01
|
13541
|
62
|
|
|
23 OCT 01
|
BBD,B
|
1000
|
11289
|
23 OCT 01
|
1139
|
102
|
|
|
02 NOV 01
|
BBD,B
|
2000
|
21060
|
8 NOV 01
|
21060
|
502
|
|
|
10 JUL 01
|
ERICY
|
1000
|
4879.35 US
|
2 AUG 01
|
5070.48 US
|
191.13 US
|
|
|
07 SEP 01
|
ERICY
|
1000
|
4229 US
|
22 OCT 01
|
4420.85 US
|
191.85 US
|
|
|
22 JAN 01
|
QQQ
|
750
|
48780.6 US
|
23 JAN 01
|
4982.78 US
|
402.18 US
|
|
|
06 JUL 01
|
QQQ
|
250
|
11434.35 US
|
10 JUL 01
|
11220.27 US
|
|
<214.10> US
|
|
05 JAN 01
|
WCOM
|
1450
|
21431.35 US
|
27 DEC 00
|
21431.35 US
|
1452.16 US
|
|
|
16 JAN 01
|
WCOM
|
1000
|
21216.85 US
|
17 JAN 01
|
21344.93 US
|
128.08 US
|
|
|
25 MAY 01
|
WCOM
|
750
|
13304.35 US
|
25 MAY 01
|
13775.18 US
|
470.83 US
|
|
|
5 JUN 01
|
WCOM
|
750
|
13266.85 US
|
6 JUN 01
|
13312.70 US
|
45.85 US
|
|
|
27 JUL 01
|
WCOM
|
1000
|
13529.35 US
|
31 JUL 01
|
13970.18 US
|
440.78 US
|
|
|
14 AUG 01
|
WCOM
|
1000
|
13379
|
16 AUG 01
|
13620.5 US
|
241.54 US
|
|
|
30 AUG 01
|
WCOM
|
1000
|
13289 US
|
30 AUG 01
|
13370.65 US
|
80.55 US
|
|
|
31 AUG 01
|
WCOM
|
1000
|
13120 US
|
10 SEP 01
|
13220.55 US
|
91.55 US
|
|
|
29 OCT 01
|
WCOM
|
1000
|
12074 US
|
29 OCT 01
|
12120.59 US
|
46.59 US
|
|
|
21 DEC 01
|
NT
|
1000
|
11925.1
|
31 DEC 01
|
12031
|
106 US
|
|
|
14 JUN 01
|
AVA
|
37
|
DIVIDENT
|
14 JUN 01
|
529.33
|
529.33 US
|
|
|
TOTAL
|
|
US RATE 1.5484 x 4204.32
|
CA
CA
|
1883.50
6509.96
|
|
|
|
|
|
|
|
|
8393.46
|
|
|
Symbols
|
Companies
|
Activities
|
|
BBD,B
|
Bombardier
|
Aeronautics
|
|
ERICY
|
Ericsson
Telephone
|
Telephones
|
|
QQQ
|
Nasdaq 100
shares
|
Top 100
technology cos.
|
|
WCOM
|
Worldcom
|
Telephony and
telecommunications
|
|
NT
|
Nortel Networks
|
Telecommunications
|
|
AVA
|
Avaya
|
Telecom
equipment
|
SCHEDULE "C"
I.
2002 REPORT
|
DATE OF PURCHASE
|
TITLE
|
SHARES
|
PURCHASE
|
DATE OF SALE
|
SALE
|
PROFIT
|
LOSS
|
|
14 JAN 02
|
BMO
|
1000
|
36229
|
14 JAN 02
|
36301
|
72
|
|
|
16 JAN 02
|
BMO
|
1000
|
36069
|
27 JAN 02
|
36371
|
302
|
|
|
12 FEB 02
|
QQQ
|
700
|
24839 US
|
13 FEB 02
|
24897.6 US
|
58.62 US
|
|
|
04 JAN 02
|
WCOM
|
1000
|
14109 US
|
7 JAN 02
|
14250.78 US
|
141.78 US
|
|
|
14 JAN 02
|
WCOM
|
2000
|
26298 US
|
7 FEB 02
|
16239 US
|
|
<10058> US
|
|
12 APR 02
|
WCOM
|
1500
|
8670 US
|
5 JUL 02
|
85.98 US
|
|
<8584.02> US
|
|
TOTAL
|
|
US RATE 1.5704 x
|
|
<18642> US
<29275> CA
|
|
|
|
|
|
|
|
688.70 CA
|
|
|
LOSS IN 2002
|
<28586> CA
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE "D"
I.
2003 REPORT
|
DATE OF PURCHASE
|
TITLE
|
SHARES
|
PURCHASE
|
DATE OF SALE
|
SALE
|
PROFIT
|
LOSS
|
|
7 MAR 00
|
SIKG
|
1500
|
1154.50
|
BANKRUPT
|
—
|
|
<1154.5>
|
|
29 SEP 00
|
ITMS
|
3500
|
3039.50
|
BANKRUPT
|
—
|
|
<3039.5>
|
|
24 JAN 01
|
QQQ
|
400
|
26985.59 US
|
11 DEC 03
|
13015.34 US
|
|
<19646>
Rate 1.5095
|
|
TOTAL
|
|
|
|
|
|
|
<23840.52>
|
|
|
|
|
|
|
|
|
|
|
Symbols
|
Companies
|
Activities
|
|
SIKG
|
Sigmen Gold
|
Gold mining
|
|
ITMS
|
Micro-Tempus
|
Software
equipment
|
|
QQQ
|
Nasdaq 100
shares
|
Top 100
technology cos.
|
SCHEDULE "E"
I.
2004 REPORT
|
DATE OF PURCHASE
|
TITLE
|
SHARES
|
PURCHASE
|
DATE OF SALE
|
SALE
|
PROFIT
|
LOSS
|
|
12 JAN 04
|
NT
|
1000
|
7379
|
13 JAN 04
|
7821
|
442
|
|
|
13 JAN 04
|
NT
|
1000
|
7819
|
14 JAN 04
|
7921
|
102
|
|
|
21 JAN 04
|
NT
|
1000
|
8949
|
21 JAN 04
|
8971
|
22
|
|
|
26 JAN 04
|
NT
|
1000
|
8479
|
26 JAN 04
|
8621
|
142
|
|
|
27 JAN 04
|
NT
|
1000
|
8379
|
28 JAN 04
|
8521
|
142
|
|
|
5 FEB 04
|
NT
|
1000
|
11209
|
10 JUL 04
|
5351
|
|
<5858>
|
|
27 MAY 04
|
QQQ
|
600
|
21209 US
|
28 MAY 04
|
21246.5 US
|
37.5 US
|
|
|
28 NOV 04
|
QQQ
|
350
|
13679 US
|
30 NOV 04
|
13708 US
|
29.17 US
|
|
|
14 NOV 04
|
UBS
|
3000
|
80705
|
19 OCT 04
|
232
|
|
<7838.5>
|
|
25 MAR 00
|
SGI
|
1650
|
5170
|
6 DEC 04
|
162.40
|
|
<5007.6>
|
|
14 MAR 00
|
GEM
|
850
|
837
|
24 DEC 04
|
0
|
|
<837>
|
|
28 NOV 00
|
INVT
|
2900
|
2141.95 US
|
23 DEC 04
|
0
|
|
<2414.95>
US
Rate
1.542
<3723.85>
CA
|
|
7 MAR 00
|
SIKGOLD
|
1500
|
1154.50
|
DEC 04
|
BANKRUPT
|
|
<1154.50>
|
|
6 MAR 00
|
VENGOLD
|
260
|
1078.5
|
DEC 04
|
BANKRUPT
|
|
<1078.5>
|
|
TOTAL
|
|
|
|
|
|
9528
|
<25497>
|
|
GRAND TOTAL
|
<24544>
CA
|
|
Symbols
|
Companies
|
Activities
|
|
NT
|
Nortel Networks
|
Telecommunications
|
|
QQQ
|
Nasdaq 100
shares
|
Top 100
technology cos.
|
|
UBS
|
Unique Broadband
|
Fibre optics
|
|
INVT
|
InvestAmerica
|
Telecommunications
network
|
|
SIKG
|
Sigmen Gold
|
Gold mining
|
|
VENG
|
VenGold
|
Gold mining
|
|
SGI
|
Signalgene
|
Biomedical
|
|
GEM
|
Nortern
Financial
|
Internet
advertising
|
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