Business vs. Adventure or Concern in the Nature of Trade
“Adventure or concern in the nature of trade” is not defined in the Excise Tax Act, R.S.C., 1985, c. E-15 (“ETA”). In Aviva Canada Inc. (formerly CGU Group Canada Ltd.) v. The Queen, 2006 TCC 57 [Aviva], the Court held that nothing in the GST/HST scheme requires the phrase to bear a broader meaning than it has for income tax purposes.
Accordingly, the first requirement for an adventure in the nature of trade is that it involves a “scheme for profit-making’,” as stated by the Supreme Court of Canada (“SCC”) in Friesen v. R., [1995] 3 S.C.R. 103. Whether the transaction bears the signs of a speculative trading venture is also a relevant consideration, as discussed by the SCC in Continental Bank of Canada v. Canada, [1998] 2 S.C.R. 358.
M.N.R. v. Taylor, 56 DTC 1125
The basic principles governing an adventure or concern in the nature of trade, as set out in M.N.R. v. Taylor, 56 DTC 1125, include the following:
The meaning of the term “trade” and the phrase “adventure or concern in the nature of trade” are not synonymous. Accordingly, a transaction may constitute an adventure or concern in the nature of trade even though it does not amount to a trade itself;
The characterization of a transaction depends on its nature and the surrounding circumstances, and no single criterion is determinative;
If a person deals with a particular commodity in the same manner as would a dealer in that commodity, the transaction is likely to constitute an adventure or concern in the nature of trade;
The nature and quantity of the subject matter of a transaction may exclude the possibility that the transaction is of a capital nature;
An element of speculation is a relevant factor in determining whether a transaction constitutes an adventure or concern in the nature of trade;
The isolated or single nature of a transaction is also a relevant factor;
A transaction may constitute an adventure or concern in the nature of trade notwithstanding that no organization is established to carry it into effect and nothing is done to the subject matter to make it saleable; and
An intention to sell purchased property at a profit is an important factor, although it is not necessarily determinative.
Distinction between Business and Adventure or Concern in the Nature of Trade under the ETA
A principal distinction between a business and an adventure or concern in the nature of trade is that a business generally involves a degree of continuity or an organized course of conduct, whereas an adventure or concern in the nature of trade may arise from an isolated transaction. The CRA’s GST/HST Memoranda Series, Chapter 2-1, “Required Registration recognizes this distinction. In Aviva, the Court similarly described an adventure as an isolated happening, as opposed to carrying on a business.
The distinction, however, is not based solely on the frequency or regularity of transactions. In Policy Statement P-059, the CRA states that, in determining whether a sale of real property is made in the course of a business or as an adventure or concern in the nature of trade, consideration should be given to the supplier’s whole course of conduct in dealing with the property, the activities undertaken in relation to the sale, and the characterization of the transaction for income tax purposes. The CRA further states that a business may generally be distinguished from an adventure or concern in the nature of trade by the amount of time, attention and resources devoted to the transaction or by the frequency or regularity of similar transactions. An adventure will generally involve acquiring property on an isolated basis with a primary or secondary intention of resale at a profit and only passive or limited activities relating to the resale. By contrast, regular sales or sales conducted in a business-like manner, including through extensive marketing or the devotion of substantial time, attention and resources, will normally indicate a business.
In Aviva, the taxpayer was inserted as an accommodation party: it acquired two trademarks from underwriters and resold them to the appellant on the same day for equal value, solely so that the resulting capital gain would be recognized by the taxpayer and used to absorb its accumulated losses. Woods J. held that the supply was neither an adventure or concern in the nature of trade nor a business. With respect to the adventure, the transaction lacked the incidents of a trade: the taxpayer had not negotiated the sale, acquired and disposed of the trademarks on the same day, and gave consideration equal in value to what it received. The taxpayer acted for tax reasons rather than as a speculator. With respect to business, the Court found that the transaction lacked the continuity of time or operations necessary, in the circumstances, to constitute a business. The one-day acquisition and resale therefore did not amount to a business carried on by the taxpayer.
Further guidance can be found in CRA interpretation bulletin IT459 ARCHIVED – Adventure or Concern in the Nature of Trade.
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