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Badges of Trade

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Submitted By michie
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Badges of trade
In 1955, the raoyal commission on taxation (uk), provided six indicator or badges of trading. If we could pin anyone or more of these badges to a particular transaction then we could estalisj the existence of business/trade. Let us consider the six badges identified by the royal commission:
a. The subject matter of realization
The nature of the asset that is dealt with may indicate the fact that there is trading. If an asset that is acquired does not yield to the owner income, perdonal enjoyment or aesthetic pleasure, the chances are that he purchased the item to sell it at a profit

b. Length of ownership
This test is not decisive. However, aquick resale may support the fact that there is trading. In the case of turner v last (1965), where the taxpayer sold a piece of landa within four months of ownership
c. Frequency of similar transaction
This is a decisive test, frequency of similar transactions are likely to be held to ocnstitiute a trade. In the case of Pickford v Quirke (1927), Rowlatt j said:
It is very well jnown that one transcation of buyinf and selling a thing does not make a man trader, but if it is repeated and becomes systematic , then be becomes a trader and the profits of the trader, not taxable as long as they remain isolated, become taxable as items in a trade as a whole.
d. Motive
The commission on taxation identified three reasons for purchasing a property: for personal use, to keep as a long term investment and derive income therefrom and for resale at a profit.
If I can be proved that the taxpayer’s intention in buying an item Is to sell it at a profit that is enough to establish a...

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