Tax Court of Canada


Income tax

Capital gains and losses

Taxypayer’s securities trading gains reassessed as income

Taxpayer maintained two investment accounts at company, one for Canadian and one for U.S. dollar positions. Taxpayer’s strategy was to invest in diversified securities that had potential for 30 percent returns. In early 2009, taxpayer liquidated holdings in both accounts and converted them in cash to supposedly pay off mortgage. Taxpayer, however, purchased and sold stocks costing about $2.5 million. Taxpayer’s total gain was $550,000. Taxpayer reported his gains and losses on these positions as capital gains in his 2009 income tax return. Canada Revenue Agency (CRA) reassessed to include full amount in income. Taxpayer appealed. Appeal dismissed. Reassessment characterizing gains as income gains was not incorrect. Taxpayer was trading in securities as business activity, or at least was buying and selling securities as part of adventure in nature of trade. Taxpayer’s primary intention when purchasing securities was to sell them at profit as soon as reasonable return could be realized. Taxpayer spent considerable time each day monitoring markets beyond what he said was required for his employment. Nature of gains realized by taxpayer buying and selling securities in his investments accounts bore close similarity to what he was doing in his investment dealer positions for decades. Taxpayer was buying and selling throughout year, and his holding periods were clearly short and often very, very short. On balance of probabilities, taxpayer did not satisfy Court about his mortgage paydown plans. There were no bank documents showing when taxpayer committed to renew mortgage. Surely at some point in first part of taxpayer’s 2009 reinvestment activities, he realized that he was picking securities for quickest target cumulative return. Combined results of not being able to conclude taxpayer’s investment strategy was unchanged in 2009 or that he liquidated in 2009 in order to pay off mortgage, and not having been given detailed evidence regarding prior years meant Court only considered actual activity in his accounts in 2009. Taxpayer’s expertise extended to what he regarded as trading activities; whilst his securities trading activities in 2009 may not have risen to level of him carrying on business of trading securities, they appeared to handily meet all of requirements to have been considered adventure or concern in nature of trade. Taxpayer was not treated differently or singled out because his investments were in securities.

R. v. Foote (2017), 2017 CarswellNat 1729, 2017 TCC 61, Patrick Boyle J. (T.C.C. [General Procedure]).

cover image


Subscribers get early and easy access to Law Times.

Law Times Poll

Law Times reports that there is no explicit rule that lawyers in Ontario must be competent in the use of technology. Do you think there should be explicit rules spelling out the expectations of lawyers’ in terms of tech use in their practice?