Trade, Business, Profession, Vocation

Question 1

What are the differences in tax treatment between trade income and non-trade income?

Answer 1

For trade income:

1. Trade loss may be set off against income from other sources/carried back/carried forward.
2. Only in the case of trade/business/profession: capital allowance claim.

Question 2

Badges of trade

Answer 2

As there is no definition of what are trade, business, profession and vocation in the income tax act, we will apply the badges of trade to determine the TBPV.

• Subject matter of realization
• Length of period of ownership
• Frequency of transactions
• Supplementary work done
• Circumstance responsible for realization
• Motive

We can use one fact for more than one batch of trade. It does not mean that one fact is fixated to one badge of trade.

When doing the badge of trade, we need to be well familiar with the facts first before we choose the badge of trade. Don’t rush to form a conclusion.

Question 3

Subject Matter of Realization (Badges of trade)

Answer 3

• Dependent on the nature of the asset. Is it for trading or for personal enjoyment?
• Is it purchased in large quantities?
• Usually inconclusive.

Question 4

Length of period of ownership

Answer 4

• The longer the period, the less likely to be trading.
• What is considered long? This depends on the asset itself/nature of the asset. For example: holding a stock for 3 years is considered long whereas living in a residential building is short .

Question 5

Frequency of transactions

Answer 5

• Repeated similar transactions are more likely to be trading.
• However, it does not mean that isolated transaction is not trading.
• What is considered as repeated?

Question 6

Supplementary Work Done

Answer 6

• Work done on the asset to bring it into a more marketable condition. The more work is done, the more likely for it to be trading.
• For example:
  Manufacturing
  Processing
  Improvement
  Modification
  Marketing - Work need not be done on the asset itself. As long as work is done to bring the asset into a more sellable condition is considered as supplementary work done on the asset.

It also about the extent. Eg: Minor/Major work

Question 7

Circumstance Responsible for Realization

Answer 7

• What are the events leading up to the sale of the asset.
• If is is a forced sale/unplanned sale/not connected with the normal course of trade, it is less likely to be trading.

For example:

• Forced cessation of business
• Sudden emergency that required money
• Opportunity that requires ready money (Unexpected opportunity)