Six badges of trade (circumstantial evidence)

1. Motive of the transaction
- profit-seeking motive at the time of acquisition

2. Subject matter of realization
- personal enjoyment [Rutledge v CIR (1929)]

- capable of producing future benefits?

3. Length of period of ownership
- CIR v Sincere Insurance and Investment Co. Ltd. [1973] (1 HKTC 602)

4. Frequency of transactions [Leach v Pogson (1962)]

5. Supplementary work done with the subject matter [Martin v Lowry (1926)]

6. Circumstances leading to the realization (D10/88)

 

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In each of the following independent situations, briefly determine (with reasons) whether the taxpayer is likely / not likely of having a trade or business: (Note: be specific, you are not required to go through all six badges each time) a) A university lecturer made substantial gains from shares transactions on the Stock Exchange in Hong Kong after trying to forecast the market. (5 marks) b) Mandy was on a business trip to United Kingdom and purchased 10,000 pieces of toothpaste. On returning to Hong Kong while arranging for the consignment of the toothpaste, she sold them to one individual for a profit. (5 marks) c) A taxpayer purchased brandy from South Africa. Some was shipped to the Asia with the remainder being sent to London to be blended with French brandy, recasked and sold at a profit. (5 marks) In each of the following independent situations, briefly determine (with reasons) whether the taxpayer is likely / not likely of having a trade or business: (Note: be specific, you are not required to go through all six badges each time) a) A university lecturer made substantial gains from shares transactions on the Stock Exchange in Hong Kong after trying to forecast the market. (5 marks) b) Mandy was on a business trip to United Kingdom and purchased 10,000 pieces of toothpaste. On returning to Hong Kong while arranging for the consignment of the toothpaste, she sold them to one individual for a profit. (5 marks) c) A taxpayer purchased brandy from South Africa. Some was shipped to the Asia with the remainder being sent to London to be blended with French brandy, recasked and sold at a profit. (5 marks)

Answer rating: 100% (QA)

a The given case falls in the class of Profit Seeking Motive which is normally shows that the lecturermade interest in the stocks after estimate the m... View the full answer