7 January 1991 Income Tax Severed Letter - Disposition of Securities - Income vs Capital

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.

Subject: XXX Disposition of Securities Income vs Capital

This is in reply to your memorandum of December 7, 1990, requesting our opinion as to whether the disposition of securities in 1986, 1987 and subsequent years by the taxpayer named above should be considered on behalf of income or capital.

Our Understanding of the facts is as follows:

XXX

Taxpayer's Position

• 1. XXX
• 2. XXX
• 3. XXX
• 4. On the basis of the factors in Interpretation Bulletin IT-479R and the tax case Harrison vs M.N.R. [[1976] C.T.C. 2082] 76 DTC 1078 (TRB), the taxpayer's representative determined that the transaction are on account of income.

District Office Position

Audit Review maintains that the taxpayer XXX

Audit's position, on the other hand, is to consider the taxpayer to be carrying on a business. XXX

Our Comments

Generally, the representative of a stock brokerage firm will not be considered as being a “trader or dealer in securities”. The person who represents himself to the public as a trader or dealer is not the representative but the firm employing the representative. However, question 41 of the Revenue Canada Round Table Discussion in the 1984 Conference Report states that subsection 39(4) precludes those “who, as a result of a course of conduct, have a pattern of buying and selling securities”. The tests that the Courts have applied in making such a determination are those of “course of conduct” and “intention”.

In order to analyze the issues in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business, we have thus restated the various factors listed in Interpretation Bulletin IT-479R.

A) Frequency of similar transactions

The Department's requirements are not that each type of security be sold and purchased frequently but that there be a history of many purchases and sales in existence. According to the facts submitted, it appears that this factor has been met.

B) Period of Ownership

According to the facts and a subsequent telephone conversation of January 7, 1991 (Boulay/Tremblay) XXX

C) Knowledge of the Securities Market

XXX

D) Transactions in Share securities form part of the taxpayer's ordinary business. XXX this test is not relevant.

E) Time spent

XXX

F) Financing

Securities purchases are XXX or by some other form of debt.

G) Advertising

This test does not appear to be relevant to the facts of this case. Although the information available to us does not permit us to express an opinion, you may wish to question the deductibility of the amount claimed as XXX

H) Shares are normally speculative in nature or of a non-dividend type

The manner in which XXX

It is our opinion, based on the factors mentioned above, that the taxpayer should be viewed as carrying on a business. The tax cases also seem to support that a business was contemplated. See Harrison v MNR [[1976] C.T.C. 2082] (76 DTC 1078) and Karben Holdings Ltd v The Queen [[1989] 2 C.T.C. 145] (89 DTC 5413) where the volume of trading (80 to 180 transactions) indicated a business. Consequently, it is our opinion that the taxpayer can be considered a trader and the transactions should be reported on account of income.

We trust our comments will be of assistance to you.