Not Trading Flashcards
Facts
• Bought land for medium/long term investment purpose
• Ended up selling land quickly (after 3 months)
Decision
• Not trading
Reasoning
• case was equivocal - could be capital or trading
Arguments
• Even if land doesn’t produce investment income (e.g. rental income) this isn’t conclusive proof of trading
• This case established the nine badges of trade
Marson v Morton
Facts
• operated profit making restaurant + educational classes and gymnasium at a loss
• Restaurant made a profit but there was no profit seeking motive
• Restaurant would have continued even if made a loss
Decision
• Gym and classes not trade
• Restaurant was a trade even though it would have been carried on if it made a loss
Reasoning
• N/A
Arguments
• Once a trade is established profits are chargeable to tax regardless of whether there was profit seeking motive
Grove V YMCA
Facts
• builder acquired land and built property on it
• sold the property decades later
• he claimed they weren’t part of his trading stock
Decision
• sale of investments and therefore not trading
Reasoning
• length of time between building and selling. Normally people try to dispose of trading stock as soon as possible
Arguments
• even if business is similar you can hold something and have it not be trading stock
Harvey V Caulcott
Facts
• Bought house with intention to live there
• Wife said house was unsuitable to live in, received planning permission to demolish the house (increasing the value) but property developer offered to buy
• He contended not trading because house not bought with intention to make profit
Decision
• Not trading
Reasoning
• Even though he changed mind about living in property he didn’t change his intention
Arguments
• Intentions of purchaser can determine if trading or not
• Trying to enhance value of land doesn’t necessarily mean trading
Taylor v Good
Facts
• Bought and developed several properties
• Ultimate aim was to sell properties and use money to float a plc
• Financial climate forced them to sell properties early and liquidate group
Decision
• Purchases were investments not trading
Reasoning
• Selling one investment (properties) to buy another (plc) is not trading
• Properties were acquired as investments and didn’t become trading stock just because investment plan failed
• Sales were forced realisation of investments
Arguments
• Transaction can have dual motive (trading and investment) and status of an asset can change from investment to trading stock but asset can only be one or the other at any one time
Lionel Simmons Properties V CIR
Facts
• Purchaser acquired land to use as office and storage place for their plant hire and demolition business
• dwelling house eventually built on that land and whole site was sold
Decision
• not trading
Reasoning
• there may have been a subsidiary trading purpose but at the time the land was acquired the purpose was too indefinite to lead to trading conclusion
• Main purpose was capital in nature
• Can’t deny capital nature because of an indefinite subsidiary purpose
Arguments
• Purpose can’t prevail over what the taxpayer actually does (see case Iswera v CIR) but in equivocal cases purpose can however determine the outcome
Kirkham V Williams
Facts
• Company had sovereign rights over certain land in Canada
• Sold these rights for cash and option to reclaim part of land
• Reclaimed land and sold it from time to time
Decision
• not trading
Reasoning
• Company didn’t buy the land (had sovereign right instead) so it’s similar to someone selling inherited land when opportunity arose
Arguments
• The method of acquisition of an asset is significant in decided whether a trade exists
Hudson’s Bay Company Ltd V Stevens
Facts
• Bought and sold loads of stocks and shares
Decision
• not trading
Reasoning
• Frequency badge and quick turnover badge not as applicable because shares are financial assets
• Shares can be bought and sold easily without much need for set up
Arguments
• Share transactions for individuals usually treated as investment
• Even if share not held as investments, the activity of buying and selling can be speculation (still not trading)
Salt V Chamberlain
Decision
• not trading
Arguments
• For mutual trading those who contribute to surplus must be same people that benefit from payouts
Municipal Mutual Insurance LTD V Hills
Facts
• Insurance company with no members other than those who held policies
• Members paid into fund
• Surplus was given to members to reduce premium/increase coverage
Decision
• not trading
Reasoning
• Members premiums were payments to common fund
• Surplus from fund came from excess premiums paid by members
• Excess payments returned to members was members just getting their money back
Arguments
• Mutual funds aren’t trading
Styles V New York Life Insurance Co
Facts
• Lived mainly on proceeds of bets on horses
• Crown said these were trading profits
Decision
• not trading
Reasoning
• Didn’t have a trading organisation
• Each individual bet not trading transaction/source of income as payment received as a result of irrational agreement on outcome of an event
• Betting being systematic or habitual doesn’t make it trade
Arguments
• Bookmakers rather than betters more likely to be trade since they are more organised someone trying to make a profit
• Betting wins and losses not subject to tax
Graham V Green
Facts
• Judge talks about burglary and whether it’s a trade or not
Decision
• not trading
Reasoning
• Burglary gangs might be organised like a trade but the judge says that burglary can’t be a trade, not because it’s illegal but because it burglary
Arguments
• legality is not an essential characteristic of trade
• Burglary isn’t a trade as it doesn’t have commercial character as they don’t buy/grow goods. Like illegal version of receiving asset via gift/inheritance
Harrison (Watford) Ltd v Griffiths
Facts
• Did not charge fees to clients
• Company got income from commission from insurance companies
• ex-client paid ex gratia payments of £1k for 5 years to company for long business association
Decision
• ex-gratia payments not trading receipts
Reasoning
The gift was:
1) unsolicited and unexpected
2) made after business connection had ceased
3) made to recognise past service but not because past service inadequately rewarded
4) consolation for termination of the remunerative business connection
There was also no question of the business connection being resumed
Arguments
• Receipts received by virtue of trade (i.e. if person wasn’t a trader
receipts wouldn’t have arisen) - not taxable
• Receipts that arise from the trade - taxable
• Different criteria for an ex-gratia payment to be non-taxable
Simpson V John Renolds and Co (Insurances) Ltd
Facts
• Brewery that company was leasing business properties from decided to terminate some of the tenancies
• company receive ex gratia payment for tenancies being cancelled
Decision
• Not taxable
Reasoning
• Compensation was to acknowledge friendly association and to uphold brewer’s reputation in the trade
• There was nothing to suggest payments were compensation for loss of future profits
• The continuation of the business connection could have turned it to trading profits but wasn’t sufficient enough by itself
Arguments
• Continuation of business connection would suggest that an ex-gratia payment is trading income
• ex gratia payments that are meant to compensate loss of future profits likely to be trading income
Murray V Goodhews
Facts
• Auditor gave up some work in return for compensation
Decision
• Part of compensation was taxable under ITEPA and the rest was taxed under ITTOI (i.e. tradining income)
Reasoning
• ITEPA element was part of compensation that related to loss of office
• ITTOIA element was part of compensation that related to general accountancy work and held to arise from the trade
Arguments
• Where receipt arise from loss of office/employment it will be taxable under ITEPA
Ellis V Lucas
