Case Law

Trading?

In Ransom v Higgs 1974 STC 539 it was decided that an individual who procured other persons to carry out a complex scheme, designed to realise a profit, could not be said to be personally trading.

The infinite variety of possible factual circumstances means that no fixed formula can be applied to determine whether or not an activity should be classified as trading or non-trading. Erichsen v Last 1881 4 TC 422

Stewardess of a golf club provided catering services to the club. Profits were Schedule D rather than Schedule E. McManus v Griffiths 1997 STC 1089

Exploitation of copyright and trademark of a fictional character was held to be a trade in Noddy Subsidiary Rights Co. Ltd 1966 43 TC 458.

In Reed v Nova Securities 1985 STC 724 it was held that the acquisition of property which had no resale value and was thus inherently incapable of producing a profit could not form part of a trading transaction.

Isolated transactions do not constitute a trade. Jenkinson (HM Inspector of Taxes) v Freedland 1961 39 TC 636

In Neenan Travel Limited v Minister for Social and Family Affairs 2011 IEHC 458, the court in this case were asked to determine whether or not a proprietary director was liable to PRSI as a Class A or a Class S contributor. The issues of employed versus self employed for income tax purposes were also examined. In Brightwater Selection [Ireland] Ltd v Minister for Social and Family Affairs 2011 IEHC 510, this case examined whether an agency worker for Brightwater was engaged under a contract of service and thereby insurable at the PRSI Class A rate of contribution.

Trading income and Badges of trade 24TACD2019

Badges of Trading

Subject matter of the realisation

In IRC v Fraser 24 TC 498, a taxpayer who bought and sold a large quantity of whiskey, was held to be trading.

Length of ownership

In Kirby v Hughes 1993 STC 77 the fact that a building contractor constructed a property and occupied it for a short period did not rule out an intention to acquire it for the purpose of his trade.

Frequency of transactions

A taxpayer who systematically purchased endowment policies and held them to maturity was said to be trading. Smith Barry v Cordy 28 TC 250

Supplementary work

In Martin v Lowry 1926 11 TC 297 the taxpayer rented offices and hired employees in order to sell off a large stock of surplus linen to various customers. The taxpayer was held to be trading.

Three individuals who converted a cargo vessel into a steam drifter and then sold it were held to be trading. IRC v Livingston 11 TC 538

Circumstances responsible for the realisation

In Spa Estates v O’hArgain 1975 HC it was held that an intending land developer who sold off land before any development activities commenced, was not engaged in an ‘adventure’ in the nature of trade.

Motive

Accounting treatment of a transaction is evidence of intention. Shadford v Fairweather 1966 43 TC 291

Accounting Treatment

Profits should be based on historical cost accounting and not on current cost accounting. Carroll Industries plc (Formerly PJ Carroll & Co Ltd) and PJ Carroll & Co Limited v S O’Culachain (Inspector of Taxes) 1988 IV ITR 135

Ordinary accountancy treatment applied, in calculating the loss on sale of a lease, by a company to a shareholder. Cronin (Inspector of Taxes) v Cork and County Property Company Ltd 1986 III ITR 198

Lands may be treated as trading stock of a developer even if it does not yet have possession. In deciding whether the lands qualified as trading stock, the accounting treatment was held to be strong evidence of the ‘commercial reality’ of the situation. Murnaghan Bros v J O Maoldhomhnaigh (Inspector of Taxes) 1990 IV ITR 304

Advance payments made to a company, whose business consisted of the hiring of motor vehicles, and related to periods after the sale of the company to a third party, were part of the company’s profits in the accounting period in which the business was sold. Tapemaze Ltd v Melluish (HM Inspector of Taxes) 2000 STC 189

Revenue or Capital Receipts

The distinction between a capital profit made on the disposal of an investment and a trading profit made as the result of a ‘deal’ was expressed in California Copper Syndicate v Harris 1904 5 TC 159.

A payment for the cancellation of the company’s future rights under an agreement, which constituted a capital asset of the company, was a capital receipt. Van den Berghs Limited v Clark (H.M. Inspector of Taxes) 1935 19 TC 390

The taxpayer set aside funds to meet future liabilities of its business. It was claimed that the interest arising on investment of those funds should be treated as trading income. This was rejected. Nuclear Electric plc v Bradley 1979 STC 750

An inducement payment made to a lessee for undertaking an onerous lease was a capital payment. CIR v Wattie and anor 1998 STC 1160

A payment received in return for the sale of an income stream, was a capital receipt. IRC v John Lewis Properties plc 2001 STC 1118

Able (UK) Ltd v Revenue & Customs Commissioners 2007 STC 1738 considered whether compensation received for losses and expenses arising out of the giving and withdrawal of a CPO notice to a taxpayer was income or capital in nature.

Payments made in connection with the taxpayer’s role as chief executive were income and not a “gift” 29TACD2019

Taxable Receipts

In Wain v Cameron 1995 STC 555 it was held that the sale of property rights created in the course of a profession were taxable receipts.

Training grants and other contributions towards expenditure should normally be taxable O’Cleirigh (Inspector of Taxes) v Jacobs International Ltd 1985 III ITR 165

Investment in silver bullion by loans with a high rate of interest held to be an adventure in the nature of trade. Wisdom v Chamberlain (H.M. Inspector of Taxes) 1969 45 TC 92

The proposition that ‘any profit made by a bank on the realisation of an investment is part of the bank’s taxable profits’ was rejected in Guinness & Mahon Limited v Browne (Inspector of Taxes) 1985 III ITR 373.

Income generated from the purchase of sweepstake tickets was trading income. HH v MJ Forbes (Inspector of Taxes) 1974 II ITR 614.

Goods and services provided for consideration to non-members of a club, any surplus arising will be taxable. Carlisle & Silloth Golf Club v Smith 1913 6 TC 198

The selling off of whiskey stocks over a period after the liquidator had ceased to trade was not trading. IRC v Old Bushmills Distillery Co Ltd 1928 12 TC 1148

In N Cohan’s Executors v IRC 12 TC 602, executors were held not to be trading when they completed the purchase of a contract to buy a ship entered into by the taxpayer before his death and when they resold the ship.

Trade Carried On Exclusively Abroad

A warehousing business carried on entirely by managers in Toronto was not carried on wholly abroad as the UK proprietor had oversight of the business from the UK. Ogilive v Kitton 1908 5 TC 338

In Colquhoun v Brooks 1889 2 TC 490 it was held that Case I applied to “a trade carried on partly abroad and partly in Great Britain” but that it “was not intended to apply to a trade carried on exclusively abroad”.

A trade is carried on exclusively abroad and taxed under Case III only if all activities are carried on outside the State and such activities are not controlled and directed from the State. San Paulo (Brazilian) Railway Company v Carter 1896 3 TC 407