Section 7 – Investments
Nature of Transactions
When a security is disposed of, it is important to determine whether the transaction is of the nature of capital or income resembling business income in order to determine the appropriate tax treatment. Tax legislation does not make a clear distinction between these two types of transactions. Accordingly, the nature of each transaction will be based on the particular facts, which will be determined in accordance with the following criteria:
- The intention of the taxpayer at the time of purchase, i.e. quick gain or long-term investment;
- The duration of the possession of the property;
- The relationship between the transaction and the taxpayer’s usual activities;
- The frequency of similar transactions;
- The circumstances surrounding the transaction.
A taxpayer may ensure that losses or profits on a disposition of Canadian securities (shares, bonds, mutual fund units, notes, mortgages, etc.) are treated as capital gains or losses by making an irrevocable election, valid for the current and subsequent years, on prescribed forms filed with his/her federal income tax return. Securities brokers cannot make this election.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.