Determining the Existence of a Trade

The word “trade” is not defined in the Income Tax Act. Whether or not a trade is being carried on is a question of fact. In determining whether a trade exists, the following factors will be examined:



Factors to determine whether trade exist

1. Nature of subject matter

This refers to the nature of the asset/ property that is being bought and sold. Some property (e.g. commodities, manufactured items) are normally regarded as the subject of trading while others are less likely to be regarded as trading when they are not bought in quantity (e.g. antiques, art work).

 2. Length of ownership

This refers to the holding period of the asset/ property in question. The shorter the holding period, the more likely it would be regarded as held for trading.

 3. Frequency of transactions

High frequency of similar transactions is more indicative of trading than an isolated transaction.

 4. Supplementary work

This refers to additional work done on the asset/ property in question to make it more marketable or extra effort made to find or attract purchasers. If this is done, it is more likely that the subsequent disposal would be regarded as trading.

 5. Circumstances of the realisation

Some circumstances are less likely to indicate trading (e.g. company is forced to sell the property in question due to compulsory acquisition, sudden urgent need of cash or threat of foreclosure by creditors).

 6. Motive

This refers to whether there was an intention to trade at the time of the acquisition of the asset/ property in question.

 7. Mode of financing

This refers to how the purchase of the asset/property in question is being financed. Short-term financing is more indicative of trading than long-term financing. The company's financial position and ability to hold on to the property will also be taken into consideration.

 8. Other factors

Other factors include whether there were any feasibility studies conducted, the accounting treatment of the company, the availability of documentation or other evidence maintained by the company to indicate its intention.


All the above factors are to be taken into consideration when determining whether a trade exists, and no single factor is conclusive. These factors to determine trading only apply in circumstances involving a sale of goods/ property and not to situations where companies perform services in return for payment.  



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