24(1)
19(1)
Re: Disposition of Securities - Income vs Capital
This is in reply to your memorandum of April 17, 1991, requesting our opinion as to whether the 24(1) by the taxpayers named above should be considered on behalf of income or capital.
Our Understanding of the facts is as follows:
24(1)
Taxpayer's Position
24(1)
District Office Position
24(1)
Our Comments
Whether a transaction is on income or capital account is a question of fact that can best be determined from an analysis of those facts. Since you have not commented at all on the submissions from 24(1) we assume that the facts presented and the analysis reported in those submissions are correct.
The tests that the Courts have applied in making determination of whether the transactions are on account of income or capital are those of "course of conduct" and "intention". These tests have all been well analyzed by Montreal DO Audit. 24(1)
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,
24(1)
B) Period of Ownership
24(1)
We note that it is our position that, further to question 49 of the 1984 Revenue Canada Round Table of Tax Conference, the securities that were transferred under section 85 of the Act in a prior year will continue to be capital property to the corporation if they were capital property to the transferor.
C) Knowledge of the Securities Market
24(1)
24(1)
D) Transactions in Share securities form part of the taxpayer's ordinary business.
24(1) this test is not relevant
E) Time spent
There is no indication that 19(1) spends any more time in analyzing securities than any concerned investor nor is it apparent that any of the taxpayers have used special information not available to the public to realize a quick profit.
F) Financing
24(1)
G) Advertising
This test does not appear to be relevant to the facts of this case.
H) Shares are normally speculative in nature or of a non-dividend type.
24(1)
It is our opinion, based on the factors mentioned above, that the taxpayers should not be viewed as carrying on a business. The facts also seem to support the view that an investment was contemplated, Consequently, it is our opinion that the taxpayer should not be considered a trader and the transactions are properly reported on account of capital.
We trust our comments will be of assistance to you.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch