Azrak v. The Queen

Azrak v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2008-04-28
Neutral citation
2008 TCC 217
File numbers
2007-3116(IT)I
Judges and Taxing Officers
Paul Bédard
Subjects
Income Tax Act
Decision Content
Docket: 2007-3116(IT)I
BETWEEN:
JOSEPH AZRAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on March 14, 2008, at Montreal, Quebec
Before: The Honourable Justice Paul Bédard
Appearances:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
Alain Gareau
____________________________________________________________________
JUDGMENT
The appeal of the reassessments established under the Income Tax Act for the 2003 and 2004 taxation years is dismissed, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of April 2008.
"Paul Bédard"
Bédard J.
Translation certified true
on this 4th day of June 2008.
Elizabeth Tan, Translator
Citation: 2008TCC217
Date: 20080428
Docket: 2007-3116(IT)I
BETWEEN:
JOSEPH AZRAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] The issue in question is relatively simple: whether the Appellant could deduct his losses from the disposition of publicly traded shares as business losses in calculating his income. Were they business losses or capital losses?
[2] When he produced his tax returns, the Appellant deducted business losses of $23,840 for the 2003 taxation year and $29,671 for the 2004 taxation year.
[3] By notices of reassessment dated December 18, 2006, the Minister of National Revenue (the "Minister") cancelled the business losses deducted for the 2003 and 2004 taxation years and recorded a capital loss of $23, 840 in the Appellant's file for the 2003 taxation year, and $23,417 for the 2004 taxation year.
[4] On or around February 2, 2007, the Appellant filed a Notice of Objection to the Ministers against the December 18, 2006, reassessments for the 2003 and 2004 taxation years.
[5] On June 20, 2007, the Minister confirmed the December 18, 2006, reassessments for the 2003 and 2004 taxation years.
[6] On July 3, 2007, the Appellant appealed to the Court to have the December 18, 2006, reassessments vacated, for the 2003 and 2004 taxation years.
[7] To establish and confirm the reassessments for the 2003 and 2004 taxation years, the Minister relied on the same hypotheses, namely:
[translation]
(a) During the years in question, the Appellant had a job with the company Hani Autos Inc; (admitted)
(b) His employment income was $52,850 for the 2003 taxation year and $79,875 for the 2004 taxation year; (admitted)
(c) The Appellant did not have professional training in the securities field; (denied)
(d) During the 2003 taxation year, the Appellant performed three security transactions, which resulted in a loss of $23,839; (denied)
(e) During the 2004 taxation year, the Appellant performed 15 security transactions, which resulted in a loss of $23,417; (admitted)
(f) During the 2000 taxation year, the Appellant made a profit during the disposition of securities and this profit was assessed by the Respondent as a capital gain. (admitted)
[8] The purchase and sale of shares the Appellant carried out and their price, dates of purchase and sale for 2000 are described at Schedule "A", attached to these Reasons.
[9] The purchase and sale of shares the Appellant carried out and their price, dates of purchase and sale for 2001 are described at Schedule "B", attached to these Reasons.
[10] The purchase and sale of shares the Appellant carried out and their price, dates of purchase and sale for 2002 are described at Schedule "C", attached to these Reasons.
[11] The purchase and sale of shares the Appellant carried out and their price, dates of purchase and sale for 2003 are described at Schedule "D", attached to these Reasons.
[12] The purchase and sale of shares the Appellant carried out and their price, dates of purchase and sale for 2004 are described at Schedule "E", attached to these Reasons.
[13] The evidence shows that the Appellant purchased publicly traded shares for $188,071; $408,584; $188,346; $44,671 and $117,016 in 2000, 2001, 2002, 2003 and 2004, respectively. The evidence also shows that the Appellant sold publicly traded shares for $200,623; $414,143; $159,761; $19,522 and $93,040 in 2000, 2001, 2002, 2003 and 2004, respectively.
[14] The Appellant testified that:
(a) he worked as an employee in 2003 and 2004, around 40 hours a week;
(b) during the years in question, he and members of his family spent around 80 hours a week doing market studies on securities and researching potential purchases;
(c) during the 2000 and 2001 taxation years, he made a profit of $12,589 and $8,393, respectively, through the disposition of publicly traded shares; he treated these profits as capital gains in his tax returns for those years;
(d) during the 2002 taxation year he had a loss of $28,586 through the disposition of publicly traded shares; he treated these losses as capital losses in his tax return that year;
(e) in 1999, he actively operated a jewellery purchase and sale company and a stock market investment company. On April 26, 1999, as a natural person operating an individual business, the Appellant produced a certificate of registration (Exhibit A-3) indicating he operated these two businesses. The Appellant explained that in 2000 he stopped actively operating his stock market investment business because the publicly traded shares were "at their peak" and that was why he submitted a deregistration certificate for his investment business (Exhibit A-6) to the Inspecteur général des institutions financières on June 4, 2000. The Appellant added that he started to actively operate his investment business again in December 2003 and that was why he again submitted a registration certificate in April 2004 (Exhibit A-11) stating that he had again begun operating his investment business.
[15] I would point out that the Appellant's overall testimony did not mention his knowledge and training in the securities field, his investment strategy and research tools.
Appellant's position
[16] The Appellant claimed that profits and losses in 2000, 2001 and 2002 from the disposition of publicly traded shares during those years were treated as capital gains and losses because he did not operate the investment business during those years as shown by the registration statement he produced. Moreover, he claims that the losses in 2003 and 2004 from the provision of these publicly traded shares in those same years were considered as business gains and losses because he operated an investment business during those years as shown by the registration statement he produced.
Analysis and conclusion
[17] In general, the result of an operation is a capital gain (or a loss) insomuch as there is investment-related accounting, meaning when there is a disposition of property acquired for financial return (to draw income from property or a business) or even for personal purposes. On the contrary, the result of an operation is considered a business income (or loss) when the operation is related to a business concept, speculation or a commercial business or project.
[18] With no definitions in the legislation, the courts have had to develop several criteria in an effort to characterize a gain or loss resulting from specific work. However, no criterion taken in isolation is necessarily sufficient or determinative and that, in each case, all the circumstances of the operation must be examined. The criteria or factors most often used include the following:
(i) the taxpayer's true intention as shown by the taxpayer's conduct and the circumstances in which the transactions occurred;
(ii) the time between the purchase and the sale;
(iii) the frequency of transactions (history of extensive buying and selling of securities);
(iv) the nature of the securities (whether are they speculative);
(v) whether the transactions are of the same kind or carried out in the same way as those of a dealer in securities. In this sense, does the taxpayer spend a substantial part of his or her time studying the securities markets and investigating potential purchases? Are security purchases financed primarily on margin or by some other form of debt?
[19] The Appellant must first understand that producing a registration statement that he operates an investment business does not ensure that the profits and losses from the disposition of securities in a given year are, for the purposes of the Act, business profits or losses during that year. The registration statement is an element that enters into our analysis; however, I feel that this element is not a determinative one. The Appellant's producing statements of registration indicating he operated an investment business in 1999, 2003 and 2004 and that he stopped operating this business in 2000, 2001 and 2002 is even less determinative in this case since there were more operations and their monetary value was higher in the years the statement of registration indicates he stopped operating his investment business.
[20] The Appellant purchased publicly traded shares (as thousands of Canadians do) to make a profit. However, nothing in the evidence submitted indicates that the Appellant's transactions fit within the concept of business, trade, speculation or a commercial matter or project. In this case, the securities transactions were not speculative. There were few operations (no purchases in 2003, 14 in 2004, one sale in 2003, and 12 sales in 2004). The shares sold in 2003 had been held for around two years. The fact that the period of detention for shares was generally shorter in 2004 is not determinative as to the nature of the Appellant's losses. The Appellant did not submit any evidence that his operations were similar to those of a dealer and that they were carried out in the same way.
[21] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 28th day of April 2008.
"Paul Bédard"
Bédard J.
Translation certified true
on this 4th day of June 2008.
Elizabeth Tan, Translator
SCHEDULE "A"
I. 2000 REPORT
DATE OF PURCHASE
TITLE
SHARES
PURCHASE
DATE OF SALE
SALE
PROFIT
LOSS
30 NOV 00
BBD,B
500
11485.50
08 DEC 00
11970.50
485.00
18 SEP 00
INVT
1450
2210.27
19 SEP 00
3168.07
957.80 CA
02 NOV 00
INVT
4000
3331.60
08 NOV 00
3777.45
445.85 US
04 OCT 00
LU
450
13754.35
11 OCT 00
14932.65
1178.30 US
30 OCT 00
LU
700
14160.60
03 NOV 00
15840.11
1679.51 US
08 NOV 00
WCOM
800
14329
08 NOV 00
14470.16
140.81 US
14 NOV 00
WCOM
1000
16279.35
17 NOV 00
16970.08
690.73 US
24 NOV 00
WCOM
1250
19172.85
6 DEC 00
20273.97
1101.12 US
8 DEC 00
WCOM
1250
18319.10
11 DEC 00
19336.50
1017.40 US
12 DEC 00
WCOM
1250
18475.35
14 DEC 00
19727.92 US
1251.77 US
TOTAL
TOTAL
CANADIAN
US
EXCHANGE RATE 1.4852 x
1442.80 CA
7505.49 US
TOTAL
IN CANADIAN
12589.95
Symbols
Companies
Activities
BBD,B
Bombardier
Aeronautics
INVT
InvestAmerica
Telecommunications network
LU
Lucent Technologies
Telecommunications
WCOM
Worldcom
Telephony and telecommunications
SCHEDULE "B"
I. 2001 REPORT
DATE OF PURCHASE
TITLE
SHARES
PURCHASE
DATE OF SALE
SALE
PROFIT
LOSS
20 DEC 00
BBD,B
520
11703.50
02 JAN 01
12216.50
513.00
05 JAN 01
BBD,B
550
12129.5
22 JAN 01
12730.5
601
8 MAR 01
BBD,B
650
12932
08 MAR 01
13039.50
103.5
27 SEP 01
BBD,B
1000
13479
27 SEP 01
13541
62
23 OCT 01
BBD,B
1000
11289
23 OCT 01
1139
102
02 NOV 01
BBD,B
2000
21060
8 NOV 01
21060
502
10 JUL 01
ERICY
1000
4879.35 US
2 AUG 01
5070.48 US
191.13 US
07 SEP 01
ERICY
1000
4229 US
22 OCT 01
4420.85 US
191.85 US
22 JAN 01
QQQ
750
48780.6 US
23 JAN 01
4982.78 US
402.18 US
06 JUL 01
QQQ
250
11434.35 US
10 JUL 01
11220.27 US
<214.10> US
05 JAN 01
WCOM
1450
21431.35 US
27 DEC 00
21431.35 US
1452.16 US
16 JAN 01
WCOM
1000
21216.85 US
17 JAN 01
21344.93 US
128.08 US
25 MAY 01
WCOM
750
13304.35 US
25 MAY 01
13775.18 US
470.83 US
5 JUN 01
WCOM
750
13266.85 US
6 JUN 01
13312.70 US
45.85 US
27 JUL 01
WCOM
1000
13529.35 US
31 JUL 01
13970.18 US
440.78 US
14 AUG 01
WCOM
1000
13379
16 AUG 01
13620.5 US
241.54 US
30 AUG 01
WCOM
1000
13289 US
30 AUG 01
13370.65 US
80.55 US
31 AUG 01
WCOM
1000
13120 US
10 SEP 01
13220.55 US
91.55 US
29 OCT 01
WCOM
1000
12074 US
29 OCT 01
12120.59 US
46.59 US
21 DEC 01
NT
1000
11925.1
31 DEC 01
12031
106 US
14 JUN 01
AVA
37
DIVIDENT
14 JUN 01
529.33
529.33 US
TOTAL
US RATE 1.5484 x 4204.32
CA
CA
1883.50
6509.96
8393.46
Symbols
Companies
Activities
BBD,B
Bombardier
Aeronautics
ERICY
Ericsson Telephone
Telephones
QQQ
Nasdaq 100 shares
Top 100 technology cos.
WCOM
Worldcom
Telephony and telecommunications
NT
Nortel Networks
Telecommunications
AVA
Avaya
Telecom equipment
SCHEDULE "C"
I. 2002 REPORT
DATE OF PURCHASE
TITLE
SHARES
PURCHASE
DATE OF SALE
SALE
PROFIT
LOSS
14 JAN 02
BMO
1000
36229
14 JAN 02
36301
72
16 JAN 02
BMO
1000
36069
27 JAN 02
36371
302
12 FEB 02
QQQ
700
24839 US
13 FEB 02
24897.6 US
58.62 US
04 JAN 02
WCOM
1000
14109 US
7 JAN 02
14250.78 US
141.78 US
14 JAN 02
WCOM
2000
26298 US
7 FEB 02
16239 US
<10058> US
12 APR 02
WCOM
1500
8670 US
5 JUL 02
85.98 US
<8584.02> US
TOTAL
US RATE 1.5704 x
<18642> US
<29275> CA
688.70 CA
LOSS IN 2002
<28586> CA
SCHEDULE "D"
I. 2003 REPORT
DATE OF PURCHASE
TITLE
SHARES
PURCHASE
DATE OF SALE
SALE
PROFIT
LOSS
7 MAR 00
SIKG
1500
1154.50
BANKRUPT
—
<1154.5>
29 SEP 00
ITMS
3500
3039.50
BANKRUPT
—
<3039.5>
24 JAN 01
QQQ
400
26985.59 US
11 DEC 03
13015.34 US
<19646>
Rate 1.5095
TOTAL
<23840.52>
Symbols
Companies
Activities
SIKG
Sigmen Gold
Gold mining
ITMS
Micro-Tempus
Software equipment
QQQ
Nasdaq 100 shares
Top 100 technology cos.
SCHEDULE "E"
I. 2004 REPORT
DATE OF PURCHASE
TITLE
SHARES
PURCHASE
DATE OF SALE
SALE
PROFIT
LOSS
12 JAN 04
NT
1000
7379
13 JAN 04
7821
442
13 JAN 04
NT
1000
7819
14 JAN 04
7921
102
21 JAN 04
NT
1000
8949
21 JAN 04
8971
22
26 JAN 04
NT
1000
8479
26 JAN 04
8621
142
27 JAN 04
NT
1000
8379
28 JAN 04
8521
142
5 FEB 04
NT
1000
11209
10 JUL 04
5351
<5858>
27 MAY 04
QQQ
600
21209 US
28 MAY 04
21246.5 US
37.5 US
28 NOV 04
QQQ
350
13679 US
30 NOV 04
13708 US
29.17 US
14 NOV 04
UBS
3000
80705
19 OCT 04
232
<7838.5>
25 MAR 00
SGI
1650
5170
6 DEC 04
162.40
<5007.6>
14 MAR 00
GEM
850
837
24 DEC 04
0
<837>
28 NOV 00
INVT
2900
2141.95 US
23 DEC 04
0
<2414.95> US
Rate 1.542
<3723.85> CA
7 MAR 00
SIKGOLD
1500
1154.50
DEC 04
BANKRUPT
<1154.50>
6 MAR 00
VENGOLD
260
1078.5
DEC 04
BANKRUPT
<1078.5>
TOTAL
9528
<25497>
GRAND TOTAL
<24544> CA
Symbols
Companies
Activities
NT
Nortel Networks
Telecommunications
QQQ
Nasdaq 100 shares
Top 100 technology cos.
UBS
Unique Broadband
Fibre optics
INVT
InvestAmerica
Telecommunications network
SIKG
Sigmen Gold
Gold mining
VENG
VenGold
Gold mining
SGI
Signalgene
Biomedical
GEM
Nortern Financial
Internet advertising
CITATION: 2008TCC217
COURT FILE No.: 2007-3116(IT)I
STYLE OF CAUSE: JOSEPH AZRAK AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: March 14, 2008
REASONS FOR JUDGMENT BY: The Honourable Justice Paul Bédard
DATE OF JUDGMENT: April 28, 2008
APPEARANCES:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
Alain Gareau
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada