Badges of Trade

BADGES OF TRADE

There are a few indicators or so called circumstances that we may take into consideration to judge whether an activity could be considered as "business" under Section 4 (a) with reference to badges of trade :-

1) Profit Seeking Motive

• An intention to make a profit supports trading, but by itself is not conclusive.

• Evidence that the sole object of acquiring an asset was to re-sell it at a profit, without any intention of holding it as an investment, is a pointer to the conclusion that a trade is being carried on. However, the presence of a profit-seeking motive is not necessarily a decisive pointer to the existence of a trade. It is only one factor to be weighed along with all the other relevant factors.

Cases reference:-

i. Salt v Chamberlain Ch D 1979 53 TC 143 [1979] STC 750

A research consultant made a loss on the Stock Exchange after trying to forecast the market.  The loss was made after several years and over 200 transactions.  This was not seen as a trade and capital in nature.  It was concluded that share trading by a private individual can never have the badges of trade pinned to them.  These transactions are subject to Real Property Gains Tax.

ii. Rutledge v CIR CS 1929 14 TC 490

On a business trip to Germany, a taxpayer purchased one million toilet rolls.  On returning to the UK the sole consignment of toilet rolls were sold to one individual for a profit.  The profit made on this large quantity single purchase and resale item was ‘an adventure in the nature of trade’.  The case was decided on the fact that the purchase was not made for own use or investment purposes.

2) Isolated Transactions

• Verifying with the number of transactions

• Systematic and repeated transactions will support 'trade'.

• A single isolated transaction can amount to the carrying on of a trade for tax purposes, but it is generally not easy to show that that is the case. The transaction, if it is to be trading for CT purposes, has...