| February 1, 1990 | |
| TORONTO DISTRICT OFFICE | Specialty Rulings |
| Directorate | |
| M. Mihaly, Chief | G. Thornley |
| Internal Audit | (613) 957-2101 |
| File No. 7-4570 |
Subject: Securities Gains and Losses
This is in reply to your memorandum of December 4, 1990.
24(1)
You ask if a taxpayer who has not filed an election, but who simply reports his a gains and losses on Schedule 2 of the T1 Return, is deemed to have made a T123 election?
You further ask if a taxpayer who originally claims capital treatment, without filing a T123 election, can be allowed to change his claim retroactively to a claim for income treatment?
Our Comments
The Department's position with respect to the reporting of gains and losses from the disposition of securities is set out in Interpretation Bulletin IT-479R. The "course of conduct" and "intention" factors are discussed in paragraphs 9 to 13 inclusive. Paragraph 11 in particular sets out some of the factors to be considered in ascertaining whether security transactions should be on account of income. As we do not have sufficient information to make such a determination. 24(1)
This is a question of fact, the determination of which can only be made after an examination of all the facts and circumstances.
24(1)
Thus the answer to your first question is that the Act requires the filing of an election in prescribed form (T123) before all subsequent dispositions will be deemed to be on account of capital. It is possible that in the absence of the prescribed form a reasonable facsimile would be accepted as evidence of making the election but it is doubtful that the mere filing and reporting of dispositions on the capital disposition line of a Return would constitute an election. We note that a taxpayer cannot elect to have income treatment; in a case where capital treatment has not been elected, it should be a question of fact whether income treatment or capital treatment is appropriate.
The answer to your second question is that there does not appear to be any impediment to a taxpayer, in the circumstances of your enquiry, retroactively reporting his security transactions on an income basis. Whether or not the Department has to accept such a filing would depend on all the facts and circumstances of the case. This is no different than any other taxpayer-requested readjustment.
We trust our comments will prove helpful in this matter.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Ken Warren
c.c. R. Roy. ADM