Kane v. Canada
T-1506-89
Noël J.
14/10/94
8 pp.
Appeal from Tax Court decision upholding reassessments for 1979, 1980, 1981-Plaintiff shareholder, director, president of Orell Copper Mines Ltd., junior mining company-Certified general accountant by profession, prospector by trade-Devoting 50% of time to accounting practice, balance on Orell's affairs, principally in dealing with mining ventures, activities-Dealing extensively with both free and escrowed Orell shares-In 1978 tax return, plaintiff electing under Income Tax Act, s. 39(4) to have all transactions in Canadian securities treated on capital account-S. 39(4) providing where Canadian security disposed of in taxation year and taxpayer so electing, every Canadian security owned by him in that year or subsequent taxation year deemed capital property, and disposition of such Canadian security deemed disposition of capital property-S. 39(5) providing election under s. 39(4) not applying to disposition of Canadian security by trader, dealer in securities-MNR, relying on s. 39(5), disregarding election on basis plaintiff trader in shares-Whether plaintiff trader, dealer in securities-Appeal dismissed-Vancouver Art Metal Works Ltd. v. Canada, [1993] 2 F.C. 179 (C.A.) confining category of persons prevented from making election to registered or licensed dealers in securities, and those who, without being licensed, registered, make it their business or profession to trade in securities-Investors, those engaged in business of dealing, trading in securities only by virtue of having embarked upon adventures in nature of trade, outside category-Plaintiff "promoter" within B.C. Securities Act, but not licensed dealer in securities-Not sufficient that plaintiff's actions be akin to those involved in trade, business or of same nature-Actions must on own account be those of person involved in business of "trading" or "dealing" in securities within plain, ordinary meaning of those words-Difficulty herein distinction between trader, dealer in true sense and trader, dealer only by virtue of having engaged in adventures in nature of trade-Question of fact to determine whether activities amounting to carrying on trade, business-Consideration of factors outlined in Vancouver Art useful in ascertaining existence of securities trading business as opposed to investment, but begging question as to legal basis on which such business said to arise, once found to exist-Factors highlighted by Court of Appeal traditionally applied indiscriminately to identify both persons who carry on business in true sense, as well as persons in business by virtue of having engaged in adventure in nature of trade-Because indicia of trade, must be found to exist under either analysis before conclusion as to existence of business for tax purposes can be reached-Usually distinction matters little as tax treatment of profits, losses arising from business generally same whether business existing as such or whether existence premised on extended definition of "business"-Distinction between trader by virtue of engaging in adventure in nature of trade, and dealer as expression used in s. 39(5)(a) found by reference to legislative intent in enacting limitation embodied therein-S. 39(5)(a) intended to prevent registered, licensed traders, dealers in securities from converting income arising from that trade into capital gains-In normal course, licensed dealers trading for account of clients and s. 39(5)(a) not relevant to them-Only relevant when, from time to time, choose to trade on own account-Legislator not intending individuals who, by their trade, have professional knowledge of market in which dealing, to benefit from election-In determining availability of election to trader in securities without being licensed, focus should be whether author of transactions possessing particular, special knowledge of market in which trades-To extent that does, distinguishes himself from common risk takers who "play the market" based on commonly available investment advice, information-Plaintiff having special knowledge of market in which Orell shares traded-Insider by virtue of holdings, promoter as term used in B.C. Securities Act-Directly involved in mining ventures of Orell and in organizing public financing offerings-In position to anticipate market reaction to Orell's ongoing activities-Income Tax Act, S.C. 1970-71-72, c. 63, s. 39 (as am. by S.C. 1977-78, c. 1, s. 16)-Securities Act, S.B.C. 1985, c. 83.