Intention, Purpose & Motive of Taxpayer
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Intention, purpose & motive of taxpayerWe have to classify whether there is a profit seeking motive when a person has enters into a transaction. It is not the actuality of a profit that is important, it is the motive to earn one and more. However, customs (the revenue) and HM revenue would really be interested in this problem if a profit has actually been earned, because they have something to tax. This is necessary of any transaction, but by itself is not certain. Case law: CIR v Reinhold where a taxpayer bought 5 units of property with the admitted intention of selling it for profit but was held to be not trading. Per Lord Keith, it is not enough to show that the subject matter was bought with the view to sell it at a later date for profit, this is the expectation of any person who make an investment. A taxpayer would may argue that they are trading in order to adopt a loss to lower their tax bill. The taxpayer have to indicate the motive rather than the actuality of profit to establish that a trade is being carried on.
Frequency of transaction A single transaction could number to a trading activity, it is more indicative if there are systematic transactions and duplicated. This was obviously displayed in the case Pickford v Quirke, a syndicate bought shares in a mill, liquidated the company and formed another to company to buy the business at a profit. This was duplicate and repeated in several times. The transaction will have been treated as capital but the frequency of the activities gave it a color of trading and the profits is liable to tax. Due to the repeated nature of the transactions it was held that the profits were trading profits and taxable as such.