Commodities, and commodities futures and derivatives

The taxpayers purchased numerous paintings of Morrisseau - initially because of the advantageous price and, later, in greater volume after they learned of the tax benefits of donating the paintings. In rejecting a submission that the gains realized on donation did not qualify for exemption under s. 39(1)(a)(i.1) because the paintings were acquired on income account, Sexton J.A. found that properties purchased for the purpose of donation are, therefore, not acquired in connection with a 'scheme for profit-making'. Furthermore, the doctrine of the secondary intention could not be applied to the taxpayers because their primary intention (i.e., purchasing the paintings either with no specific intention, or with the intention to donate them) was not frustrated and, in any event, the possibility of reselling was not an operating motivation for the acquisitions.

$291,134, which a farmer received pursuant to an agreement whose "essential purpose" was for the felling and removal of all usable timber on a specified area of his land, where his main objective in entering into the contract was to clear the land for grazing, was a capital receipt.

It was held that a thoroughbred racing horse had not been bought by the taxpayer with a view to its eventual sale, and its sale three years later for stud purposes following an unexpected injury to its leg gave rise to capital gain. In rejecting an argument that because horse racing is highly speculative, with little assurance of winnings, the horse must have been bought with a view to eventual sale, Rouleau J. stated: "On such logic every person who purchases property to pursue a hobby is, for income-tax purposes, in the business of buying and selling that type of property."

He also noted that the notion of secondary intention should be used cautiously in an era when capital gains no longer are completely exempt from taxation.

After a corporate jet leased by the taxpayer ceased to be useful to it, it located a purchaser, exercised a purchase option contained in the lease and resold the aircraft to the purchaser for $7,500 more than the exercise price. In finding that this gain was realized on capital account, Maguire D.J. noted (at p. 5399) that the taxpayer "had never been involved in trading of aircrafts" and (at pp. 5399-5400) "it cannot be said that in executing the lease, containing the option to purchase clause, the Plaintiff did so with an intention at that time of ultimately disposing of the aircraft for profit".

Equipment was purchased by a syndicate whose purpose was to resell the equipment at a substantial gain to a known purchaser. When the purchaser was unable to honour its commitment due to financial difficulties, the equipment was sold instead a year later to a second purchaser in exchange for shares of the employer of the taxpayer, who was the managing member of the syndicate.

The taxpayer's gain was a taxable profit from an adventure, rather than from the extinguishment of a capital interest in the syndicate. "[T]he original intention of the appellant as to how he was to obtain his profit from this adventure was not accomplished. Instead, the appellant obtained his profit in another way, but that is of no significance."

The chief source of income of the taxpayer from farm land which she held in Scarborough was the sale in most of the years from 1945 to 1952 of topsoil to a company controlled by her husband, which then removed the topsoil at its expense. In 1953, the taxpayer sold the portion of the lands from which she had been removing topsoil, obtained the covenant of the purchaser to remove the topsoil from the purchased lands and deposit them on the remaining lands held by her, and then sold that topsoil to her husband's company for a lump sum.

All the sums received by her for the sale of topsoil were ordinary income.

The taxpayer, which was engaged in dealing in scrap metals, smelting and refining non-ferrous metals, and in carrying on a wrecking and salvage operation and a steel fabrication and erection operation received $78,096 over book for the inventory of its non-ferrous division on the sale of all the assets (including goodwill) of the non-ferrous operation.

Because the non-ferrous operation was a separate business, the above profit of $78,096 was received on capital account. The sale of the inventory "was not a sale in the business of the appellant, but was made as a part of a sale of a business of the appellant."

Because the parent corporation of the taxpayer's employer ("Canada Metal") prohibited Canada Metal from dealing in futures or purchasing lead substantially in advance of its delivery, the taxpayer, who was Canada Metal's general manager and who perceived a substantial business advantage to Canada Metal in securing a substantial purchase of lead from overseas, entered into a contract for the purchase of lead from overseas with a view to selling the lead to Canada Metal at the time of delivery. The gain which he realized from doing so was held to have arisen from an adventure in the nature of trade, and therefore was fully taxable. The transaction was highly speculative, "he dealt with the lead in exactly the same manner as any dealer in imported lead would have done", and the fact that the subject matter of the adventure was a commodity "excluded any possibility that it was of an investment nature involving the realization of a security or resulted in a fortuitous accretion of capital" (p. 1139).

The taxpayer, whose business was purchasing, refining and selling sugar, purchased 15,000 tons of raw sugar at elevated prices due to the outbreak of war. In an attempt to recoup part of the loss represented by these high prices, the taxpayer made short sales of sugar on a New York commodities exchange over the following month. The taxpayer’s president testified that these transaction were speculations (similar to share trades) and not hedges.

In finding that the gains of the taxpayer from closing out these transactions were profits from a trade under s. 3 of the Income War Tax Act, Locke J stated (at 711-712, SCR):

While not carried out contemporaneously with the purchases, the short sales were in effect a hedge by the company against a possible loss on the purchases made… . In trades where natural products are purchased in large quantities, hedging is a common, and in some cases, a necessary practice, and the cost of such operations in trades of this nature is properly allowable as an operating expense of the business. Where, as in the present case, the trader elects to close out his short sales and take a profit, this is, in my opinion, properly classified as profit from carrying on the trade.