Six Badges of Trade

Ch9 Six Badges of Trade

1 Subject matter of transactions: If the asset yields no income nor personal enjoyment, it is likely to be a trading assets.

A case can support this view. CIR v Fraser [1942] 24TC498. In this case the taxpayer was a woodcutter. He subsequently sold the whisky through an agent at a profit. Within the decision the judge stated: ‘The purchaser of a large quantity of a quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realization, and the actual dealings of the respondent with the whisky were exactly of the kind that take place in ordinary trade.’

2 Length of the ownership of the goods: the shorter the period of ownership, the more likely that the asset is a trading asset.

A case can support this view. Eames V. Steprel Properties Ltd 1946. In this case, Eames acquired a piece of land and negotiated the resale at the same day, which is very short and can be regarded as trade.

3 Frequency of similar transactions: repeated transactions of the same kind suggest that a trade may be carried on.

This was clearly displayed in the case Pickford v Quirke – CA 1927, 13 TC 251. A syndicate purchased a cotton-spinning mill with the intension of using it in a trade, however, on purchase of the mill it was in a worse state than first anticipated. The syndicate then decided to strip the mill of its assets and sell it piecemeal, making a profit. This was repeated a number of times with a number of mills. Due to the repeated nature of the transactions it was held that the profits were trading profits and taxable as such.

4 Supplementary work on the property: work done on the original property, or the setting up of an organization to sell the property, is one indication of trading.

In the case Cape Brandy Syndicate v CIR – CA 1921, 12 TC 358; [1921] 2 KB 403, members of a...