Identifying trade income: and distinguishing capital gains - L6 Flashcards
L6
What does s. 5 ITTOIA 2005 cover?
It charges income tax on trade profits.
What is the significance of s. 989 ITA 2007?
It defines “trade” to include any venture in the nature of trade.
What was held in Edwards v Bairstow [1956]?
A one-off purchase and resale for quick profit may constitute trade.
What is the key issue in distinguishing trade income from capital gains?
Whether the asset sold is a trading item (income tax) or a capital asset (capital gains tax).
What did Simmons v IRC [1980] establish?
At the time of sale, the item must be either trade or capital. A change of category must be clear.
Why do taxpayers prefer profits to be capital gains?
Capital gains typically attract lower tax rates and exemptions.
What is the significance of tribunal decisions in trade cases?
Tribunal decisions are usually final unless based on wrong law or unreasonable judgment.
What are the ‘badges of trade’ from Marson v Morton [1986]?
9 factors used to assess if a transaction is trading or not.
List three ‘badges of trade’.
Isolation, nature of subject matter, mode of execution.
What does borrowing to finance a transaction indicate?
A suggestion of trade.
What badge of trade did Simmons v IRC [1980] emphasize?
Intention to trade.
What did Kirkham v Williams [1991] say about trading intention?
Intention can be secondary, conditional, or long-term and still qualify as trading.
What did Saunders argue about the ‘intention’ badge?
It’s the key badge; others serve as evidence of it.
What did IRC v Reinhold [1953] conclude?
Buying for rental income, even with resale in mind, was not trading.
How did Iswera v IRC [1965] differ from Reinhold?
Sale of surplus land in a business-like way indicated trading despite personal motives.
Can a change of intention turn a capital asset into trading stock?
Yes, but the change must be clearly proven (Simmons v IRC).
What rule applies for calculating profit when a change of intention occurs?
Use market value at the date of trading decision, not original cost.
What does s. 172C ITTOIA 2005 provide?
Statutory basis for using market value when item is adopted into existing trade.
What case explains the same rule in the absence of existing trade?
Reasoning from Sharkey v Wernher.
Is a profit motive required for an activity to be considered trade?
No, but the activity must not be expected to make a loss.
What is the significance of Mann v Nash [1932]?
Illegal activities can still constitute taxable trade.
Can immoral trades be taxed?
Yes, as confirmed in IRC v Aken [1990].
