Commentary

B1.431 Trading transaction or capital realisation

Business tax
Business tax | Commentary

B1.431 Trading transaction or capital realisation

Business tax | Commentary

Disposal of part or whole of assets

B1.431 Trading transaction or capital realisation

Where property is sold off in portions or as a whole, the question may arise whether there has been no more than a mere realisation, wholly or partly, of a capital asset, or whether a trading activity has been carried on. In this connection, it is important to notice that trading may be the means whereby realisation is effected to the best advantage.

Assets not converted into money

The question whether a transaction is an act of trading, or is a mere conversion of capital assets, does not depend upon whether or not the asset is converted into money. There can be a trading transaction in shares when the shares of one company are exchanged for the shares of another and, moreover, realisation of capital assets frequently takes the form of conversion into money. As Lord Trayner said in Californian Copper Syndicate Ltd v Harris1:

'“A profit is realised when the seller gets the price he has bargained for. No doubt here the price took the form of fully-paid shares in another company, but, if there can be no realised profit, except when that is paid in cash, the shares were realisable and could have been turned into cash, if the appellants had been pleased to do so.”'

In this case, it was further stated by Lord Dunedin that2:

'“It is quite a well settled principle in dealing with questions of assessments to income tax, that where the owner of

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