Would the trading of securities, such as speculative futures and options contracts on commodities, by a corporation be on income or capital account and, if the former, would the gains or losses, as well as other income earned from the securities, be active business income? CRA responded:
If a taxpayer’s course of conduct indicates that they are carrying on a business in a similar manner as a trader or dealer in securities, in our view, the gains and losses would be part of the normal operation of such a trading business and would be on income account.
In such a situation, the “principal purpose” of the trading business would generally not be to derive income from property and it would not be considered to be a “specified investment business.” As a result, the trading business may be considered an “active business” and any gains or losses from the trading business, as well as any interest or dividend income pertaining to or incident to that business, may be considered “income of the corporation for the year from an active business” under subsection 125(7) of the Act. Accordingly, provided all the other criteria are met, the corporation could be entitled to the small business deduction.