Badges of trade

1. Profit seeking motive  Profit seeking motive as evidence of trade is more easily
assigned to a company or partnership than an individual.
Purpose/ Intention The main reason for the existence of a company or a
partnership is that it is a profit making concern.

 The existence of profit motive is a prima facie evidence

but is not a conclusive evidence which indicates that a
transaction constitutes trade or an adventure or concern in
the nature of trade. It may not be strong enough to show
that an isolated transaction constitutes an adventure an
adventure in the nature of trade. It should be considered
along with other badges of trade.

2. The method of  An asset may be inherited or received as a gift, and not

acquisition purchased with a view to resell at a profit. Its subsequent
sale may not be indicative of an adventure in the nature of
trade.

 An asset that is purchased may be for private use or as an

investment or for resale at a profit.

3. The subject of  An asset may be bought for personal use, or as an

realization investment or for use as trading stock. Commodities or
manufactured articles which are normally the subject of
Subject Matter/ Nature trading are seldom the subject or investment, especially if
bought in a large quantity, like the case of a million toilet
rolls in Rutledge v CIR.

4. Modification and  Modification and supplementary work may be done to an

Supplementary asset (like processing or manufacture) to make it more
Work marketable.

Improvement/  The blending of different types of brandy for sale in Cape

Supplementary work Brandy Syndicate v CIR, and the refitting or ship after
purchase and before sale in CIR v Livingstone & others
were indicative of an adventure in the nature of trade.

5. The length of the  An asset meant for trading normally is sold off within a
period of short period after acquisition. An asset that is held for a
ownership longer period before disposal could be an investment.

Timing/ length of
ownership

6. The method of sale /  An organised activity to promote or secure a sale of an

Organisation and asset would be evidence indication an adventure in the
special skill nature of trade

Ways of disposal of an  The organization of a sale office and employment of sales

article staff was the evidence in the cafe of Martin v Lowry.

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 7. The frequency of similar  A series of similar transactions taken together may
transaction constitute trade or an adventure in the nature or trade,
although each by itself may not be.

 In Pickford v Quirke, it was held that the four transactions

of buying and selling cotton mills take together fell within
the term “trade” through each by itself did not.

8. Interest in the  Interests in a similar field would indicate similar profit

similar field seeking motive. However, a trader can hold an asset
similar to his trading stock as an investment. (Hudson v
Interest in similar field Wrighton)

9. The method of  If a person had to borrow money, it could be an indication

Financing of a quick sale for a profit and not acquisition of an
investment.
Financing/ Mode of
acquisition  In D.E.F v C.I.T, a taxpayer borrowed money to buy an
estate which was then sold off within a period of less than
three weeks. The court held that the transaction was not
“trade”, but was an adventure in the nature of trade.

10. The accounting  The manner of treating or recording a transaction

treatment(s) (purchase/sale) in accounting book(s). For instance, a piece
of land acquired is recorded as a fixed assets(investment)
Organization /Transaction or trading stock?
by companies

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