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C. Tremblay (613) 957-2139
JUN 23 1988
Dear Sirs:
This is in reply to your letter of April 8, 1988, concerning the application of subparagraph 40(2)(g)(i) of the Income Tax Act (the "Act") to property other than capital property. Specifically, you question whether or not a trader in securities, who disposes of shares at a loss and reacquires the same or identical shares within 30 days of the original disposition, is subject to the superficial loss rules found in subparagraph 40(2)(g)(i) of the Act.
Our Comments
A superficial loss is defined in subsection 54(i) of the Act and the term only has relevance to transactions described in subdivision c "Taxable Capital Gains and Allowable Capital Losses", this is so because section 54 of the Act starts with the wording "in this subdivision", accordingly that section defines terms used in subdivision c of the Act.
Where a property is a trading asset and a taxpayer acquires or disposes of that property for the purpose of gaining or producing income from the property or from a business, the relevant subsection of the Act is 9(1) or 9(2) and not sections 39 and 40 of the Act.
Thus, in our opinion, subparagraph 40(2)(g)(i) of the Act would not apply to a trader in securities who disposes of shares in the normal course of his business at a loss and reacquires the same or identical shares within 30 days of the original disposition.
We trust our comments are of assistance.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch