Foote 4
Mr. Foote, the co-head of institutional trading at brokerage firm, maintained two investment accounts, one for Canadian and one for U.S. dollar positions. His strategy was to invest in a portfolio of diversified securities that, in his opinion, had the potential for 30% returns within a reasonable tie frame. In the first two months of 2009, Mr. Foote liquidated his holdings in both accounts and converted them into cash, supposedly to pay down his mortgage. Instead, during the remaining 10 months of the year, Mr. Foote had purchased and sold $2.5 million worth of stocks Mr. Foote explained that he had identified, and acted on, a rare opportunity to purchase stocks that met his particular investment criteria. For that ten-month period, Mr. Foote’s made 38 purchases and 50 sales, with an average hold period per security of about 50 days. His gains totalled $550,000 and were all reported as capital gains in his 2009 tax return.
The CRA reassessed Mr Foote to include the full amount of his gains as income. Mr. Foote appealed the assessment. The court dismissed the appeal, concluding that Mr. Foote had been trading in securities as a business activity. In support of its conclusion, the court found that Mr Foote’s primary intention when purchasing the securities was to sell them at a profit as soon as a reasonable return (in the then current market conditions) could be realized. In addition, Mr. Foote had been buying and selling securities regularly throughout the year and the holding periods were very short. The court also found that Mr. Foote spent a considerable amount of time each day monitoring markets beyond what he claimed was otherwise required for his employment. Further, the court observed the nature of the gains realized by Mr. Foote buying and selling stocks bore a close similarity to what he had been doing in his investment dealer positions for decades. He had considerable expertise and knowledge with respect to security analysis and investing, which extended to his trading activity in his investment accounts.
4 R. v. Foote. 2017 TCC 61.
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