Section 108

In the context of a case dealing with whether the taxpayer had acquired an interest in a condominium unit with a reasonable expectation of profit, Bowman A.C.J. stated (at p. 1274):

... the word "investment" is a completely neutral term. It can refer to a long-term investment in land and buildings or in corporate or government bonds - plainly a capital purpose - or it can refer to an investment in a commercial enterprise or in property that is intended to sell at a profit (an adventure in the nature of trade).

Thurlow J. referred with approval to the distinction drawn in IRC v. Desoutter Brothers Ltd., [1946] 1 All E.R. 58 (C.A.) and Tootal Co. Ltd. v. IRC, [1949] 1 All E.R. 261 (HL) between income from a business and income from investments before going on to find that the taxpayer received patent royalty income as income from a business rather than from "a mere property holding".

A non-contributory compulsory pension plan did not constitute an "investment contract" for purposes of the Securities Exchange Act of 1934 under the Howey test given that there was no investment of money into the plan by the employee (he sold his labour primarily to obtain a livelihood rather than in return for the employer's contribution to the plan), and because the pension plan could not be regarded as a common venture based on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others (the return to the employee rested primarily upon employer contributions and on the employee's ability to meet the substantial pre-conditions to vesting, rather than on the investment performance of the plan).

The respondent sold across Canada options to purchase at a future time commodities which were traded on the London commodities market. The option premiums paid to the respondent went into its general account, and the respondent then purchased options on the London market through a broker in order to be able to meet its obligations to the purchasers, the profit to the respondent coming from the difference between the premiums and commissions paid to the broker, and the premiums charged to the customers. Grange J. affirmed the finding of the commission that these were "investment contracts" for purposes of the Securities Act (Ontario). He noted (p. 281) that the Howey test, as modified in Pacific Coast Coin Exchange, was as follows:

Does the scheme involve an investment of money in an enterprise in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties, with profits to be derived in significant part from the efforts of those others?

The appellant offered bags of silver coin for sale on margin (with 85% of all margin account purchasers closing out their account without taking delivery) and hedged its obligations through transactions in the futures markets. The "commodity account agreements" which the appellant entered into with purchasers were found to be "investment contracts" for purposes of the Securities Act (Ontario), with the result that the appellant was in breach of the requirement to file a prospectus. De Grandpré J. applied the test developed in the U.S. jurisprudence that there is an investment contract where individuals are led to invest money in a common enterprise with the expectation that they will earn a profit primarily through the efforts of the promoter or of someone other than themselves.

An employee was found to have breached the condition in an employee stock option plan that "the purchase of stock thereunder shall be for investment purposes, and not with a view to resale or distribution" when he exercised his options without any intention to hold the stock for any extended period after it was issued to him. After reviewing various definitions of "investment", Allen J.A. stated (p. 712):

With the exception of the definition given in the case of Archibald v. Hartley, supra, none of these definitions seem to require that to constitute an investment any property on which money is laid out must be held for any length of time, but I am of the view that the context in which the word is used must have some influence on how it is interpreted, and when it is used in contradistinction to the words 'for resale or distribution' I think it is clearly contemplated that some element of time would intervene between the purchase and sale of the stock as against an immediate disposition thereof after issuance.

Demand loans made to a company which were evidenced by unsecured promissory notes were found to be "securities" for purposes of the definition of "investment company" in s. 69(2) of the pre-1972 Act.

A member of the public, who became a "founder-member" of a retail store by purchasing either a sewing machine or a cookware set for an amount in excess of its fair market value, thereafter was able to earn money through commissions on sales to buyers to whom he had issued buyer's cards, and from fees in respect of other persons whom he induced to become founder-members. The "founder-member purchasing agreement" which the individuals signed with the corporation owning the retail store was an "investment contract" for purposes of the Uniform Securities Act (Hawaii) because the following tests were satisfied:

1. An offeree furnishes initial value to an offeror [i.e., the excess paid over fair market value], and
2. a portion of this initial value is subjected to the risks of the enterprise, and
3. the furnishing of the initial value is induced by the offeror's promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind [i.e., the commissions or fees], over and above the initial value, will accrue to the offeree as a result of the operation of the enterprise, and
4. the offeree does not receive the right to exercise practical and actual control over the managerial decisions of the enterprise.

A clause in a deed of settlement directing the trustees to hold the trust fund "for the purpose of investing such funds in any shares stocks property or property holding company as the trustees in their discretion shall considered to be in the best interest of Sheila" was found to authorize the trustees to invest in any shares, any stock, or any property. Buckley J. noted (p. 341) that "it must, of course, be property of a kind capable of being treated as an investment, not property which is acquired merely for use and enjoyment" and went on to note that the clause would not "authorize investments merely on personal security".

Before going on to find that an admission of an intention to resell at the first opportunity did not necessarily mean that rental houses were acquired as adventures in the nature of trade rather than as investments, Lord Carmont quoted a statement by Lord Dunedin that "the fact that a man does not mean to hold an investment may be an item of admittance tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments", and went on to state (p. 392):

I draw attention to Lord Dunedin's language being used with reference to 'an investment', meaning thereby, as I think, the purchase of something normally used to produce an annual return such as lands, houses, or stocks and shares. The language would, of course, cover the purchase of houses as in the present case, but would not cover a situation in which a purchaser bought a commodity which from its nature can give no annual return.

In finding that royalties received by a manufacturer from patents which it had developed in its research department or acquired from others were not income from investments for purposes of the exclusion from excess profits tax on profits arising from a trade or business, Lord Simonds stated (p. 264):

['Investments'] is a word of which the meaning may vary according to its context. ... Here, the meaning is limited by the context, and the context is one in which a distinction has to be made between the income of investments and the other profits of a trade or business ... It appears to me that the problem may be solved in this way. I would take a schedule of the assets of the trading company concerned and, omitting assets such as stocks and shares to which ... the title of investments can in no circumstances be denied, would ask of each other asset: 'Is this an asset which the company has acquired or holds for the purpose of earning profits in, or otherwise for the promotion of, its particular trade or business?' ... Applying this test to the facts of the present appeal, I cannot believe that any business man (who may be regarded as the touchstone in such a case) would describe the patents rights here in question as investments of the taxpayer ...

In finding that an exclusion in a bequest for "investments securities for money or leasehold property" did not include proceeds of life insurance policies, Harman J. first quoted a statement in Jarman on Wills that "'investment' is a vague term and no general rule can be laid down as to its meaning,'" and went on to state (p. 907):

Counsel rested his claim on the word 'investments' saying that anything was an investment which is a mode of laying out money with a view to obtaining a return, and that a man who put out his money to buy himself a policy to be returned a sum, whether at 65 or at his death, was investing money, and that the proceeds will properly be called an investment. I have no doubt that is so, but I think the problem is: What did this testator mean when he excepted 'investments' and 'securities for money?' I think he meant stock exchange investments - stocks in shares - and things which were not stocks or shares but were securities, such as debentures. I do not think he intended to include policy monies in that phrase.

A clause in a will stated that "all monies requiring to be invested under this my will may be invested by the trustee in any manner ... including the purchase of freehold property in England and Wales". This clause was found not to authorize the purchase of a home for occupancy by a beneficiary of the will. Although freehold property purchased for the sake of income is an investment, in this case the purchase might "not be, from the financial point of view, attractive or indeed at all beneficial, because part of the price might be attributable to the special benefit represented by the acquisition of a suitable place in which to live" (p. 575).

Units of a citrus grove development coupled with a contract for cultivation, marketing and remitting the net proceeds to the investor constituted "investment contracts" for purposes of the Securities Act of 1933. Murphy J. stated (pp. 298-299):

An investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is lead to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or nominal interests in the physical assets employed in the enterprise.

Greene M.R. found that royalties derived by the taxpayer from the licensing of patents covering improvements in electrically operated hand tools were profits of its trade or business, rather than income from the holding of investments, in light of the relation of the patents to its business and the fact that it did not receive the royalties as a "mere passive owner". He also doubted the test of Macnaghten J. in C.I.R. v. Rolls-Royce, Ltd. (No. 2) (1944), 29 TC 137 (K.B.D.) that an investment involves the laying out of money, and cited the example of a son who is bequeathed a patent from which he thereafter passively derives investment income.

MacKinnon L.J., in concurring, stated (p. 165):

I think that the word 'investments' in the relevant Sections of the statute is not a word capable of legal definition. Like so many words in modern legislation, it is a word of current vernacular.

In finding that the phrase "my investments of all descriptions" in a will did not include money on current account at a bank, Kennedy J. stated (p. 451-452):

I do not think in popular parlance the word 'investment' covers money lodged in a post-office savings-bank. Such money is withdrawable at will just as money in a current account with the bank is. The only difference is until recent times the Post-Office Savings-Bank paid a low rate of interest - that is, a rate of interest lower in comparison with the rate obtainable elsewhere in what are sometimes termed gilt-edged investments. An investment is, I think, the antithesis of ready money, and ready money is usually used in a sense including money on current account or money withdrawable on demand.

In finding that a bequest of "the following securities (or the investments representing the same at my death if they shall have been converted into other holdings)" included the proceeds of such securities which had been deposited in an interest-bearing bank account, Bennett J. stated (p. 120):

Money on deposit can be, in accordance with popular parlance, spoken of as invested.

A will which empowered the trustees "to invest all monies liable to be invested in such investments as they in their absolute discretion think fit" permitted the sole surviving trustee to make interest-bearing loans on the security of deposited jewellery without independent valuations, but was breached when he made other unsecured loans.

An acquisition by one railroad company of shares in another railroad company was found not to be contrary to the Clayton Act by virtue of an exemption which stated that "this section shall not apply to corporations purchasing such stock solely for investment". Davis C.J. stated (p. 39):

The word 'investment', as the Commission said, 'is one of broad application, including in its various uses purchases of practically every kind and description and for every purpose.' One of these purposes is the purchase of property for the sake of the direct return which can be realized from such property. This is the definition to which the Commission restricted the word in this case, but it is not primarily a technical word and has other meanings. It ordinarily signifies the use of money to purchase property, personal or real, for any purpose from which income or profit is expected, presently or in the future, speculatively or permanently.

The taxpayer was incorporated by two individual shareholders of Dunlop Rubber Company, Limited (the "English Company") in order to acquire the shares of two foreign companies which held licences from the English Company and to sell those shares to the English Company at a profit. In addition to acquiring such shares, the taxpayer also acquired and disposed of a "Victory Loan" at a gain, and acquired preference shares of Amalgamated Cotton Mills Trust.

Rowlatt J. held that the taxpayer's principal business consisted of the making of investments, with the result that its gain from the disposition of the Victory Loan was a taxable profit subject to excess profits duty.

A will which authorized the trustees "to invest any monies forming part of the trust estate in their names and at their discretion in or upon such stocks funds shares securities or other investments of whatsoever nature and wheresoever and whether involving liability or not or upon such personal credit without securities as his trustees should in their absolute and uncontrolled discretion think fit" was found to permit the purchase of real estate. Lawrence J. stated (pp. 64-65):

The verb 'to invest' when used in an investment clause may safely be said to include as one of its meanings 'to apply money in the purchase of some property from which interest or profit is expected and which property is purchased in order to be held for the sake of income which it will 'yield'; whilst the noun 'investment' when used in such a clause may safely be said to include as one of its meanings 'the property in the purchase of which the money has been so applied.' ... In ordinary parlance real estate is spoken of as an investment if bought in order to be held for the sake of the income or profit accruing from it. The expression 'investing in house property' is one which every lawyer must frequently have heard, and who can doubt that in such a case the house property purchased is property described as 'an investment'?

In finding that a bequest of "mortgages, debentures, and other securities for money, shares, stocks, and pecuniary investments" did not include a large sum on current account with the testator's bankers that was subject to ten days' notice of withdrawal, Farwell J. stated (pp. 58-59):

I think that no one in ordinary parlance speaking of money which he puts on deposit account at his bankers at a short call like this - ten days - taking the usual banker's interest, which is 1 per cent. below bank rate, would treat himself as making an investment ... The money which is deposited with such bankers awaits investment: the fact that it earns interest does not make it an investment ... [T]he fact that it earns interest cannot make it an investment, because it is quite within recent times ... that banks have allowed interest on current accounts if they exceed a certain amount.

When the holder of a life insurance policy fell into arrears on the payment of premiums, the taxpayer was entitled to charge the cash surrender value of the policy with the amount of the arrears plus accrued interest thereon, such amounts being a first charge on monies payable under the policy. In finding that the interest was "income from investments of any kind other than investments in or on land" for purposes of the Land and Income Assessment Act, 1900 (New Zealand) Edwards J. found that the amounts which were so charged should be characterized as sums advanced upon the security of the policy and bearing interest, and therefore should be regarded as investments, it being "quite immaterial that no money actually passes: the premium, if paid, would be available for investment" (p. 458). He earlier stated (pp. 456-457):

There is no statutory definition of the word 'investment'. The word must therefore be read in its popular meaning. That popular meaning embraces, I think, every mode of application of money which is intended to return interest, income, or profit. Money employed as capital in a business is, in popular language, money invested in the business; money used for the purchase of negotiable instruments is an investment; so also money lent upon a bond or other personal security; so money deposited with the bank or other financial institution at interest. Money advanced by the defendant society upon the security of its own policies is therefore, in my opinion, clearly an investment.

A clause in a will which authorized the trustees "to invest in such securities as they shall think proper ... with power to retain any investments existing at his death as long as they shall see fit" was found not to authorize the trustees to hold a partnership interest in a firm of distillers, or to participate in turning the partnership into a joint stock company. Boyd C. stated (p. 340):

This latter clause does not mean the prosecution of the business he was engaged in, for at the longest that was to end in a year. Neither does it justify any change of form such as made here, whereby a partnership was superseded by a company of limited liability ... This was not ... retaining any investment existing at the time of his death, for investment is not a proper term as to monies in trade, and the testator has not used it in any popular sense, because he speaks of investing in connection with securities and does not regard his business as an investment.

In finding that a deed of settlement which directed the trustee to "invest" the trust property "in such estate or securities, whether real or personal, and of what nature or kind whatsoever as to him or them shall seem best, and most advantageous to the interest of the trust hereby created" authorized the trustee to acquire a lot in the City of Toronto, Boyd C. stated (p. 714):

If this manner of investment was not so productive of regular annual income as might be in other kinds of investment, that (especially if the adults who received the income do not complain) would not invalidate the right of the trustee to make such a choice if he exercised his best discretion, as is here unquestioned.

A power in a will authorizing the trustees to "invest" certain proceeds was seen by the majority to authorize the purchase of some land adjoining a mill site owned by the estate on the ground that such acquisition in the view of the trustees was necessary in order to ensure the future profitable operation of the mill.

In finding that a will which empowered the trustees to keep the estate "invested at my decease in or upon any stocks, funds, or securities whatsoever yielding interest [and] to continue in the same state of investment so long as they shall think fit" did not permit the retention by the trustees of a bank deposit with country bankers, Kindersley V.C. stated (p. 400):

The money stands only upon the credit of the bankers or upon their solvency. Therefore, in fact, there is no security taken. It is true that the money yields interest, but that does not make it a security. It is personal estate due from the bankers, yielding interest, but not personal estate invested on any security. The term 'investment' implies investment for a given term, but that cannot be applied to a balance in the bankers' hands, using it in a technical or popular sense.

Trust amounts received by the taxpayer that had originated from mining operations were income "derived from" mining. [See also Kemp v. MNR, [1947] CTC 343, 3 DTC 1078]

The taxpayer, who under the will of her father was the sole life tenant of the estate, contended that she was taxable in respect of securities held by the trustees in the United States, under Case V, Rule 2, which imposed tax in respect of "possessions out of the United Kingdom, other than stocks, shares or rents" on "the full amount of the actual sums annual receipt in the United Kingdom", rather under Case V, Rule 1, which imposed tax in respect of "stocks, shares or rents in any place out of the United Kingdom" on the income thereon.

It was found that in light of the fact that the estate had been fully administered and that the taxpayer had an equitable right in possession to receive during her life the proceeds of the shares and stocks of which she was tenant for life, she was taxable under Rule 1.