This is an extract of our Badges Of Trade document, which we sell as part of our Revenue Law Notes collection written by the top tier of University College Cork students.
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The ability to understand the meaning of what constitutes a trade for income tax purposes is one which enshrines great difficultly under Schedule D Case I. Schedule D Case I applies to speculative gains on profits or gains of an "adventure in the nature of trade", it is affirmed that an adventure in the nature of a trade thus is the, "a transaction entered into on a shortterm basis with the view to making a profit out of the purchase and sale of a commodity".
(McLaughlin) The statutory provisions lack an awful lot to be desired here when defining the meaning of trade and what constitutes a trade when entered into to make a tax benefit. S. 3
TCA 1997 defines a trade to be "every trade, manufacture, adventure or concern in the nature of a trade", while generally it is said that "trade involves, normally, the exchange of goods, or of services, for reward" (Ransom v. Higgs), It is clear that this definition is wholly ambiguous and has been affirmed in Martin v. Lowry, "no word will ever cover the whole ground, no formula which will be correct for every set of facts". As result, the 6 badges of trade are absolutely vital when dealing with activities which may constitute a trade for tax purposes.
The 6 badges of trade originally arose in the case of Royal Commission for the Taxation of
Profits and Income, which was seen to be the courts effort at amalgamating all the previous ideas of the courts regarding the issue of what constitutes a trade. These are as follows; "[t]he subject matter of the realization, the length of the period of ownership, the frequency of transactions, supplementary work on the asset concerned, the circumstances of the realization and finally the motive involved". In 1986 however in the case of Marson v. Morton, it was recognized that these badges were not an exhaustive list and certainly not to be used as a checklist of some type and in this case a further 3 badges were recognized bringing to a total of 9. The badges of trade are so highly regarded in this area, it has been devoted an isolated section in the Business Income Manual with the inclusion of the interpretation and caselaw
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