Business

The taxpayer donated land to the City of Ottawa, received a charitable receipt for its appraised value and claimed that his gain resulting under s. 69(1)(b) from the donation was exempted under s. 38(a.2) (respecting donations of capital property described in the "total ecological gifts" definition in s. 118.1(1)).

Before affirming this treatment, Owen J noted (at para. 78) that there were none "of the typical indicia of a business, such as a business plan or strategy, a marketing plan, financial records, an office, furniture, office supplies, a telephone listing, an e-mail address, a computer, stationery, business cards, one or more employees, actual or prospective customers, advertising, marketing, a website, banking arrangements, solicitations of business, business-related documents, etc." and (at para. 80) that "the commercial activities of [his] corporations cannot be attributed to Mr. Staltari personally without evidence that he, and not the corporations, was conducting those activities."

See summary under s. 9 – capital gain v. profit – real estate.

The taxpayer, whose principal source of income was his RRSP, received distributions of $63,750 on an investment made outside his RRSP in a purported foreign currency trading fund promising a fixed yield of 17.5% p.a., before the fund's fraudulent nature was discovered. His $186,250 loss was not from an adventure in the nature of trade because the evidence was clear that the taxpayer approached the $250,000 investment as an investor and not a trader, including that the investment was held passively and was locked in for 28 months (para. 55). Respecting his active trading of investments held in his RRSP, "trades within an RRSP are not relevant in deciding whether an individual is in the business of trading" (para. 48).

Before affirming a finding below that the appellant partnership, which had been licensed rights to exploit two films, was not carrying on a trade but instead had "non-trade business," Sales J stated (at paras. 78-79):

[78]…[A]n element of speculation in the sense of conducting an activity which might result in a profit or a loss is strongly indicative of that activity being capable of having the character of trading, and the absence of such an element is strongly indicative that it is not a trading activity.

[79] That interpretation is also supported by the way in which 'trade' was defined at the relevant time and has been defined in tax legislation for a long time, as including 'every trade, manufacture, adventure or concern in the nature of trade' (see e.g. section 832(1) ICTA 1988, set out at [398]). In a list of terms like this, the meaning of each item naturally takes some colour from those listed with it. In old legal language, the 'nosçitur a sociis' principle is relevant: the meaning of a term is given or informed by its fellow terms deployed in the same list. Here, the use of the word 'adventure' is redolent of business activity of a speculative kind, and this informs the meaning to be given to 'trade'.

The two taxpayers, who together won over $5.5 million during a four year period from playing sports lottery parlay games, were found to not be subject to tax under s. 9 on those winnings and to have realized the gains as exempt capital gains under s. 40(2)(f). Bowman C.J. found that the large number of bets placed by them was not itself indicative of anything other than a tendency to bet heavily and accepted expert testimony that given the rigid game structure, artificial winning caps and the minimal impact (if any) of sports-related knowledge, sports lottery parlay games offered overwhelming odds against players succeeding on a regular basis, so that they could not reasonably expect to earn a profit. The taxpayers were not professional gamblers who assessed the risks, minimized them and relied on inside information and knowledge and skill but, instead, would more accurately be described as compulsive gamblers.

The taxpayer let her neighbour's cattle graze on her pasture in consideration for a monthly fee per head, and agreed with her neighbour that he could crop-share her hay field. In finding that the activities of the taxpayer with respect to the pasture went beyond what was normally expected of the landlord in the maintenance of her rental property, Sheridan J. noted that the taxpayer cut brush and weeds along the fence line, trapped moles, harrowed the pasture to remove their burrows, kept water troughs full and salt supplies replenished. In finding that the taxpayer also was engaged in business activity with respect to the hay field, he noted that she had to fertilize and harrow the hay field and decide how often the hay should be cut in order to maximize the field production. In addition, her own equipment was used in the hay production and harvest and she cut brush, bailed hay and hauled bails.

In settling a dispute between the appellant and another insurance company, Canadian Group Underwriters Insurance Company ("Underwriters"), as to the ownership of two trademarks, Underwriters' interest in the trademarks was first transferred under ITA s. 85 to an affiliated corporation ("NN Life") in order to access NN Life losses, and then sold on the same day by NN Life to the appellant for $5 million in cash. The appellant was not entitled to an input tax credit for the GST charged on the sale. It applied for a refund of the GST under s. 261 on the basis that the trademark had not been sold to it in the course of a commercial activity.

In finding that the sale by NN Life was not an adventure in the nature of trade, Woods J stated (at para. 24):

NN Life did not negotiate the sale and likely acted as an accommodation party in order to minimize the income tax payable on the sale. The trademarks were acquired by NN Life on the same day as the sale to the appellant and NN Life gave consideration to Underwriters equivalent in value to what it received from the appellant. In no sense does this describe what McLaughlin J. referred to in Continental Bank as a "speculative trading venture."

The trustee in bankruptcy for a company ("Castor") which had essentially only engaged in investing in high-yield loans brought an action in its capacity of trustee for the Castor estate against the former auditors ("C&L") for $40 million in damages for breach of contract, and also began a "litigation support business" of providing assistance to most of the creditors (the "Participating Creditors"), including hiring professionals and experts, in connection with their action sounding in negligence against C&L for $800 million in damages. To the extent that, on settlement of the litigation, Richter was not able to recover its costs out of the proceeds of an award made to it on its own claim, Richter at such time would invoice the creditors for its remaining unrecovered costs, to be paid by set-off against loans they had made to it in the interim.

After noting (at para. 21) that "the word ‘undertaking' has been defined in … Drumheller v. M.N.R., 59 DTC 1177, 1180 (Exch. Ct.), as embracing ‘. . . trades, manufactures, professions, or callings, and any other conceivable kinds of enterprise as well," Archambault J stated (at para. 32):

[T]he litigation support services to the Participating Creditors constitute, if not a profession as defined in the Maxse case [[1919] 1 K.B. 647], at least an undertaking as this term is used in the definition of a "business". Given the nature of these activities and the continuous involvement required from the Estate in order to provide the services during the relevant period and that will be required from it in future years, this undertaking amounts to a business being carried on by the Estate.

See summary under ETA s. 141.01(2).

An exclusion in an insurance policy for loss resulting from engaging in a "trade, profession or occupation" did not apply to an individual doing odd jobs for a minimal payment. Not all activities generating profits will be automatically classified as "business" activities.

The taxpayers and their father had used 430 acres of a 5,700 acre property in Manitoba for farming for many years before farming ceased in the early 1970s. Commencing in 1995 they entered into two contracts for the sale of all the timber on different sections of the property for a stipulated price plus one-half of the increased revenue realized by the contractor as a result of any increase in the price of lumber.

Miller T.C.J. found that, on balance, the actions of the taxpayers, when compared to those of a commercial wood lot operator, did not display sufficient characteristics of a trader in timber to find that they were involved in an adventure in the nature of trade.

The taxpayer was not considered to be engaged in a business of making loans by virtue of the Canadian corporation of which it was a sole shareholder declaring a dividend and a stated capital reduction to be paid by way of the issuance of demand promissory notes.

Before going on to find that the taxpayer had not made three loans in the ordinary course of a business of lending money, for purposes of s. 20(1)(p)(ii), Bonner TCJ. stated (at p. 2156):

"The borrowing of money with a view to re-lending it at a higher rate of interest is an activity which is distinctly different from the investment of one's savings in mortgage loans. The former activity is strong evidence of the existence of a money lending business. However, I am not convinced that this is what the Appellant did. ... One of the factors which differentiates between loans made as simple investments of capital and loans made in the course of the business of a money lender is continuity."

Archambault TCJ. indicated that if the issue had been raised before him, he would have been inclined to doubt that a partnership that was engaged in R&D programs respecting the feeding and sheltering of steer was engaged in a business given the absence of any sales of steers in the taxation years in question and the R&D purposes for the partnership.

After finding that expenses incurred by the taxpayer were non-deductible because it had not yet commenced to carry on a business, Dussault TCJ. went on to reject a submission that the taxpayer's activities could constitute an adventure or concern in the nature of trade because "none of the activities relating to the efforts to set up the new business was in itself capable of generating income". (p. 647)

The Toronto Stock Exchange, which was a corporation without share capital and whose objects were to operate an exchange for trading in securities by its members, was found not to have as its preponderant purpose the making of a profit. Accordingly, it was exempt from tax under s. 7(1)(f)(i) of the Assessment Act (Ontario) (which contemplated business assessments on every person occupying land in connection with the carrying on of a financial or commercial business) notwithstanding that its members used the exchange for profit-making activity.

The Calgary Real Estate Board Co-operative Limited was found not to be a "business" for purposes of the Municipal Taxation Act (Alberta), which defined a "business" as "any activity or undertaking of a commercial, merchandising or industrial nature and includes a trade, profession, occupation, employment or calling and the providing of goods and services".

The test to be applied in determining whether a transaction was the sale of a business or part of a business was whether the transaction caused a material interference with the whole complex of activities involved in carrying on the business. [C.R.: 23(1)]

Before finding that an isolated transaction, whereby individuals bought undeveloped land and sold it three months later at a substantial gain, was not an adventure in the nature of trade, Sir Nicolas Browne-Wilkinson V.-C. listed (at pp. 385-386) nine badges of trading.

The predominant purpose of a non-profit corporation without share capital, which operated horse-racing properties and applied substantial profits which it earned to the retirement of its debt, was to provide a facility that was a contribution to the horse-racing industry rather than the making of profits to be used to support the racing industry. The corporation accordingly was not carrying on a "business" (Assessment Act (Ont.), s. 7(1)(j)).

Lord Fisher invited his hunting friends and relations to shoot pheasants on his estate each year, and required a "contribution" from those who accepted his invitations. It was held that he was not engaged in a "business" within the meaning of the Finance Act 1972. "[T]he true meaning of the word 'business' in the context of this Act excludes any activity which is no more than an activity for pleasure and social enjoyment."

After referring to dicta in the Salisbury House case, [1930] A.C. 432 to the effect that the letting of land does not constitute a "trade", Lord Diplock noted that the word "business" in the Malayan Income Tax Act 1967 was broader (p. 684):

"'Business' is a wider concept than 'trade'; and in the Hanover Agencies case [1967] 1 A.C. 681 the Board uttered a warning against seeking to apply these dicta outside the narrow context of British income tax law and in particular that of Schedule D ... The carrying on of 'business,' no doubt, usually calls for some activity on the part of whoever carries it on, though, depending on the nature of the business, the activity may be intermittent with long intervals of quiescence in between."

In finding that a gain resulting from the purchase of silver by the U.K. taxpayer in order to hedge against a devaluation of the pound was taxable, Harman L.J. stated:

"In the first place, it seems to me that, supposing it was a hedge against devaluation, it was nevertheless a transaction entered into on a short-term basis for the purpose of making a profit out of the purchase and sale of a commodity, and if that is not an adventure in the nature of trade I do not really know what it is. The whole object of the transaction was to make a profit."

Before finding that a stock of spare parts held in order to meet possible future emergencies were capital assets rather than stock in trade, Kitto J. stated (p. 593):

"In the case of a banker, money is his stock in trade, and any profit or loss he makes in dealing with money in the course of his business is on revenue account, notwithstanding that the money is in a sense held in reserve. In a case such as the present, however, money is not stock in trade, and neither are spare parts and stores bought with it; and if either money or goods be lost while held as a fund or stock to meet future needs, the loss is a loss on capital account".

A venture in which a wholesale machinery merchant purchased in 1919 the whole surplus stock of government aircraft linen remaining in the government's possession and then set up a large and skilled organization for disposing of the linen in smaller quantities over the following eight months, was found to be a trade, business or adventure.