Example 2 - Memo Re Character of Crypto Income (Final)

1 2822 Danforth Avenue
1 R o t f l e i s c h & Toronto, Ontario, Canada

S a m u l o v i t c h M4C 1M1
Tel: (416) 367-4222 Fax: (416) 367-8649
Professional Corporation E-mail: david@taxpage.com
Barristers & Solicitors
DELIVERED BY EMAIL: XXXXXX@hotmail.com
PRIVILEGED & CONFIDENTIAL
November 6, 2018
Mr. XXX
652 Sweetwater Place
Mississauga, ON
L3V 1T0
Dear Mr. XXX:
Re: Income Characterization of Proceeds from Crypto-Currency Transactions in 2017

Our File No.: XXXX-XXXX (XXX)
SCOPE OF OPINIONS
The opinions set out in this letter are based on the current provisions of the Income Tax Act1
(“ITA”) and our understanding of the current administrative practices of the Canada Revenue
Agency (“CRA”). The opinions set out in this letter do not address any other federal or
provincial legislation, and they do not address foreign tax legislation.
Our opinions are based on the law as of the date hereof. The laws may be changed by either
future statutory amendment or judicial decisions. These changes may have retroactive
application to the subject matter of this letter. Moreover, these changes may have a material,
adverse impact on the opinions expressed herein. We will not update this opinion for any
such changes.
We have not applied for an advance income-tax ruling for the subject matter of this letter. The
CRA may not agree with some or all of the opinions set out herein and may reassess contrary to
the opinion expressed herein.
1
Income Tax Act, RSC 1985, c. 1 (5th Supp.), as amended.
To: Mr. XXX 2
From: Rotfleisch & Samulovitch Professional Corporation

Re: Characterization of Proceeds from Crypto Transactions in 2017
November 6, 2018
QUESTION PRESENTED & SHORT ANSWER
Mr. XXX is a full-time firefighter without any formal training or education in securities trading,
finance, or commerce. In 2017, XXX earned over $1.5 million in profit from crypto-currency
transactions. Of these earnings, 96% came from dispositions of six crypto-currencies: Populous
Platform Token; Bitcoin; Ethereum; Veritaseum; Litecoin; and Secured Automated Lending
Technology. And over two-thirds of XXX’s total profit came from his dispositions of Populous
Platform Token and Bitcoin. XXX carried out a total of 754 transactions—382 purchases and
372 sales—involving these six crypto-currencies.
Are the proceeds from XXX’s 2017 transactions involving these six crypto-currencies on
account of income or capital?
Both.
Populous Platform Token, Veritaseum, and Litecoin Proceeds on Capital Account
The proceeds from XXX’s transactions involving Populous Platform Token, Veritaseum, and
Litecoin are probably on capital account.
The transactions involving Populous Platform Token, Veritaseum, and Litecoin were probably
neither an adventure in the nature of trade nor a trading business.
XXX used his personal savings—not borrowed funds—to purchase Populous Platform Token,
Veritaseum, and Litecoin. XXX relied on publicly available information when deciding whether
to purchase or sell Populous Platform Token, Veritaseum, and Litecoin, and he never attended
any formal courses on trading. And he spent at most about an hour per day on all trade-related
activities. XXX’s lack of specialized knowledge in the crypto-currency market suggests that he is
not a trader.
In 2017, XXX had 77 total transactions involving Populous Platform Token, Veritaseum, and
Litecoin combined (40 for Populous Platform Token, 14 for Veritaseum, and 23 for Litecoin), far
less than those of the taxpayers in cases where transaction frequency played heavily in the
decision. XXX could have fully liquidated his holdings in Populous Platform Token,
Veritaseum, and Litecoin when the crypto-currency market peaked in December of 2017.
Instead, he sold just enough to rebalance his crypto-currency portfolio. He retained about half of
To: Mr. XXX 3

November 6, 2018
all the Veritaseum and Litecoin units that he acquired in 2017. Although he retained only about
8% of his Populous Platform Token holdings, his initial investment in Populous Platform Token
far outweighed his initial investments in either Veritaseum or Litecoin. So, he needed to sell
more Populous Platform Token units to rebalance his portfolio when the price soared. In
addition, XXX often sold these crypto-currencies at a loss or repurchased them later at a higher
price.
Overall, XXX’s transaction behavior suggested that he sold sufficient holdings to rebalance his
crypto-currency portfolio and protect against the possibility that the market would plummet after
a dramatic rise. He then reinvested when he saw signs of market stability.
Bitcoin, Ethereum, and Secured Automated Lending Technology Proceeds on Income

Account
The proceeds from XXX’s transactions involving Bitcoin, Ethereum, and Secured Automated
Lending Technology are on income account.
The transactions involving Bitcoin, Ethereum, and Secured Automated Lending Technology
each constituted an adventure in the nature of trade, and the transactions involving Bitcoin and
Ethereum might comprise a trading business.
XXX seemingly timed the market when selling Bitcoin and Ethereum. His cash sales of Bitcoin
and Ethereum peaked when the crypto-currency market exploded in mid-December 2017. From
December 10th to the end of 2017, XXX sold 19.84 Bitcoin for $361,451.21. XXX only sold
Bitcoin for cash in three other months: in September, he sold 11.767 Bitcoin for $53,959.58; in
June, he sold 2.47 Bitcoin for $8,364.79; and, in May, he sold 0.77 Bitcoin for $245.51.
Similarly, from December 12th to the end of 2017, XXX sold 334 Ethereum units for
$287,949.62. He only sold Ethereum for cash in three other months: in September, he sold
206.56 Ethereum units for $68,073.35; in July, he sold 182 Ethereum units for $49,505.52; and,
in June, he sold 60.30 Ethereum units for $29,643.05.
XXX’s transactions involving Bitcoin and Ethereum also differ from his transactions involving
Populous Platform Token, Veritaseum, and Litecoin. First, in 2017, XXX had 77 total
transactions involving Populous Platform Token, Veritaseum, and Litecoin combined (40 for
Populous Platform Token, 14 for Veritaseum, and 23 for Litecoin), far less than his 238
transactions involving Bitcoin and 374 transactions involving Ethereum. (The Ethereum figure
excludes the superfluous transactions involving Populous Platform Token and Veritaseum.) In
addition, he sold just enough Populous Platform Token, Veritaseum, and Litecoin to rebalance
To: Mr. XXX 4

November 6, 2018
his crypto-currency portfolio when the prices of these crypto-currencies skyrocketed. By the
year’s end, he still retained about half of all the Veritaseum and Litecoin units that he acquired in
2017. Although he retained only about 8% of his Populous Platform Token holdings, his initial
investment in Populous Platform Token far outweighed his initial investments in either
Veritaseum or Litecoin. So, he needed to sell more Populous Platform Token units to rebalance
his portfolio when the price soared. But by the he end of 2017, he retained only about 2% of the
4,672.97 Ethereum units and about 4% of the 384.463 Bitcoin that he had acquired in the year.
Also, XXX’s 238 Bitcoin transactions and 374 Ethereum transactions greatly exceed those of the
taxpayers in cases where transaction frequency played heavily in the decision. Although he only
carried out 11 Secured Automated Lending Technology transactions in 2017, even a single,
isolated transaction may suffice for and adventure in the nature of trade. Also, XXX seemingly
took advantage of a mistake by the Secured Automated Lending Technology platform and
effectively sold more units than he in fact received. Moreover, his Secured Automated Lending
Technology transactions reveal a pattern of buying low and selling high, indicating that XXX
was not rebalancing his portfolio but purchasing with the intent to resell.
The transactions involving Secured Automated Lending Technology failed to comprise a trading
business. XXX’s lack of specialized knowledge in the crypto-currency market suggests that he is
not a trader. Also, XXX’s transactions with Secured Automated Lending Technology exhibited
far less frequency than those in cases finding that the taxpayer engaged in trading.
His transactions involving Bitcoin and Ethereum, however, might comprise a trading business.
Although it remains unclear whether frequent transactions suffice to render one a trader in the
absence of specialized knowledge, some authority supports this proposition.
Consistency in Reporting
XXX may adopt a different filing position with respect to dispositions involving similar
property. As a result, he may report his proceeds from the Populous Platform Token, Veritaseum,
and Litecoin transactions on capital account and his proceeds from the Bitcoin, Ethereum, and
Secured Automated Lending Technology transactions on income account. The difference in
trading activity evidences XXX’s different intentions for his Populous Platform Token,
Veritaseum, and Litecoin holdings, one the one hand, and his Bitcoin, Ethereum, and Secured
Automated Lending Technology holdings, on the other.
Suggestions for Further Research

To: Mr. XXX 5

November 6, 2018
If XXX intends to continue trading Bitcoin, Ethereum, and Secured Automated Lending
Technology in the same fashion as he did in 2017, we recommend further research into whether
he might benefit from holding his trading portfolio in a corporation, which may allow XXX to
benefit from the small business deduction.
In addition, due to the time constraints involving the collections-commencement date, we

focused our research on characterizing the profits from XXX’s 2017 crypto-currency
dispositions. We recommend that, once we file a notice of objection to XXX’s 2017 notice of
assessment, he instruct us to perform additional research on characterizing and using the losses
from his 2017 crypto-currency dispositions.
FACTS
The opinions expressed in this memo are based on the following facts and assumptions, which
have been provided to us, both orally and in writing, by you. We have not independently
verified the accuracy of these facts and assumptions except where explicitly stated; any change
to these facts could have an adverse material effect on the advice expressed in this memo, and to
the extent that any of such facts are incorrect the advice on remedying your current situation
could be adversely affected. Accordingly, we ask that you carefully review the facts as set out
below and confirm that they are correct. If there are any errors, omissions or mistakes we
request that you inform our office immediately as any changes to the facts as set out below may
have a material effect on our advice.
Background
XXX was born on October 21, 1980.
XXX works as a firefighter for the City of Toronto. He works a full-time schedule, and he has
worked for this employer for about 13 years. Previously, XXX earned a Bachelors of
Engineering from Ryerson University.
XXX never received any formal training or education in securities trading, finance, or
commerce.
XXX’s wife, YYY, works a full-time schedule as a self-employed interior decorator. Previously,
she earned a Master’s degree in public history from Western University.
To: Mr. XXX 6

November 6, 2018
YYY never received any formal training or education in securities trading, finance, or
commerce.
At present, XXX has a tax-free savings account with an approximate balance of $30,000. He also
has a registered retirement savings plan with an approximate balance of $20,000.
XXX Enters the Crypto-currency Market
XXX entered the crypto-currency market in February 2017 with the intention of establishing a
crypto-currency investment portfolio. XXX perceived crypto-currency as a means of diversifying
his savings. XXX believed that worldwide borrowing trends had rendered conventional
currencies overvalued. Moreover, XXX viewed crypto-currency as the future of money. So, he
opted to expand his investment portfolio into crypto-currencies—as opposed to cash or
securities.
XXX’s initial crypto-currency investment was about $30,000, which he used to purchase first
Bitcoin and then Ethereum in late February and early March of 2017.
XXX funded these initial crypto-currency purchases with personal savings that he kept in cash.
As a result, these funds do not appear on any of XXX’s bank-account statements. Although XXX
also acquired a home-equity loan around January 2017, he never used borrowed funds to
purchase any crypto-currency.
Soon after purchasing Bitcoin and Ethereum, XXX became aware of other types of crypto-
currency. Each crypto-currency had been variously marketed as the future of money. Sensing
that any of these crypto-currencies could potentially dominate the market, XXX figured that he
should diversify into as many as he could. He also diversified into crypto-currencies that he
learned could potentially generate income for their owners. For example, marketing materials for
the Veritaseum platform boasted that owners could rent their tokens to users wishing to access
the platform’s trading research tools. XXX purchased Veritaseum on the basis of these marketing
materials. His crypto-currency portfolio would eventually include Dash, Veritaseum, Ripple, and
Litecoin. Overall, XXX had acquired 36 types of crypto-currency in 2017.
During 2017, XXX spent no more than an hour per day researching crypto-currencies or
engaging in crypto-currency transactions. For research, XXX relied on publicly available
To: Mr. XXX 7

November 6, 2018
materials—specifically, online news releases, blog posts, and websites for crypto-currency
exchanges.
XXX’s 2017 Profit from Crypto-currency Transactions
XXX’s total profit from crypto-currency transactions in 2017 was $1,591,003.042
Over two-thirds of this amount came from XXX’s dispositions of Populous Platform Token
(“PPT”) and Bitcoin. His profit from selling PPT was $738,118.06, and his profit from selling
Bitcoin was $429,708.36.
The remaining $423,176.62 of XXX’s 2017 crypto-currency profit stems from dispositions of 27
other coin types:
 $116,832.01 gain from disposition of Ethereum (“ETH”);

 $93,968.37 gain from disposition of Veritaseum (“VERI”);
 $79,649.87 gain from disposition of Litecoin (“LTC”);
 $69,349.81 gain from disposition of Secured Automated Lending Technology (“SALT”);
 $52,340.17 gain from disposition of PayPie (“PPP”);
 $28,998.43 gain from disposition of Qtum;
 $27,626.99 gain from disposition of EOS;
 $13,089.92 gain from disposition of Bitcoin Cash (“BCH”);
 $9,962.36 gain from disposition of Ripple (“XRP”);
 $8,299.76 gain from disposition of NEO;
 $7,500.85 gain from disposition of AdEx (“ADX”);
 $3,766.38 gain from disposition of Bitcoin Gold (“BTG”);
 $1,983.37 gain from disposition of Dash;
 $1,250.93 gain from disposition of Monero (“XMR”);
 $772.85 gain from disposition of Lisk coin (“LSK”);
 $563.40 gain from disposition of DigiPulse (“DGPT”);
 $200.34 gain from disposition of MaidSafeCoin (“MAID”);
 $139.36 gain from disposition of PIVX;
 $0.86 loss from disposition of Zcash (“ZEC”);
 $35.89 loss from disposition of Steem;
 $1,693.25 loss from disposition of Stratis (“STRAT”);
2
All fiat currency is in Canadian dollars unless explicitly noted otherwise.
To: Mr. XXX 8

November 6, 2018
 $1,763.75 loss from disposition of Creditbit (“CRBIT”);

 $4,485.85 loss from disposition of Civic (“CVC”);
 $5,309.94 loss from disposition of Quantum (“QAU”);
 $12,886.68 loss from disposition of TenX (“PAY”);
 $26,744.53 loss from disposition of Pillar (“PLR”); and
 $40,197.80 loss from disposition of OmiseGo (“OMG”)
In 2017, XXX acquired but did not sell seven forms of crypto-currency: 0x, CyberMiles,
Cobinhood, CloakCoin, FoodCoin, CDX, and HMQ.
In summary, 96% of XXX’s total 2017 profit came from his dispositions of six crypto-
currencies:
1. PPT
2. Bitcoin
3. ETH
4. VERI
5. LTC
6. SALT
This memorandum shall focus on the transactions involving these six crypto-currencies.
XXX’s Crypto-currency Transactions in 2017
In 2017, XXX had a total of 382 purchase and 372 sale transactions involving PPT, Bitcoin,
ETH, VERI, LTC, and SALT.
These figures, however, include numerous superfluous transactions resulting from three factors.
First, the small-market cap of some crypto-currencies precluded XXX from executing a single
sale or purchase of the desired quantity. As a result, he purchased or sold his desired quantity in
smaller portions through successive transactions over the course of several days. For example,
when the market price of PPT suddenly exploded, XXX feared a precipitous crash would follow.
Although XXX would have preferred to sell his PPT holdings with a single transaction, the
market required him to sell PPT in piecemeal over the course of 21 days from early July to late
December 2017.
To: Mr. XXX 9

November 6, 2018
Second, due to system restrictions on various crypto-currency platforms, XXX could only
purchase certain crypto-currencies with one particular crypto-currency. In other words, XXX
often needed to trade through a crypto-currency to acquire the coin that he in fact sought. For
instance, he could only use ETH to purchase PPT, and he could only sell PPT for ETH.
Likewise, he could only use ETH to purchase VERI, and he could only sell VERI for ETH. So,
XXX’s 40 transactions involving PPT and his 14 transactions involving VERI could each have
potentially required a superfluous ETH transaction.
Finally, wanting to diversify into different crypto-currencies, XXX occasionally needed to use an
unfamiliar crypto-currency exchange. Wary of the exchange’s legitimacy, he would often
execute a test sale to satisfy himself that the exchange was indeed reliable and that he could in
fact retrieve his money.
Toward the end of 2017, XXX liquidated about $400,000 of his crypto-currency portfolio in
anticipation of paying his 2017 income-tax bill. These funds came primarily from dispositions of
LTC, ETH, and Bitcoin.
PPT Transactions
In 2017, XXX acquired a total of 119,093.43 PPT for an average cost per unit of $1.26, and he
sold a total of 109,787.15 PPT for a profit of $738,118.06.
From June 24, 2017 to December 24, 2017, XXX carried out a total of 40 transactions involving
PPT: 3 PPT-purchase transactions (including the initial coin offering) and 37 PPT-sale
transactions.
PPT can only be purchased with or sold for ETH.
 On June 24, 2017, XXX first bought 116,727.2727 units of PPT through the platform’s
initial coin offering. He acquired the PPT units for 107.0476 units of ETH. On June 24,
2017, the market value of 107.046 units of ETH was $45,484.38.3 To acquire the PPT
units, XXX therefore spent $0.39 per unit.
 From July 10, 2017 to August 11, 2017, XXX sold a total of 54,079.767 units of PPT for
a total of 1,080.651 units of ETH. These dispositions of PPT took place over the course
of eight days: July 10, 2017; July 12, 2017; July 13, 2017; July 31, 2017; August 2,
3
On June 24, 2017, ETH market price opened at US$326.85 (https://finance.yahoo.com). Average US-Canada
exchange rate in 2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-converter).
To: Mr. XXX 10

November 6, 2018
2017; August 8, 2017; and August 11, 2017. From July 10, 2017 to August 11, 2017, the
average market value of 1,080.651 units of ETH was $314,264.12.4 In selling the PPT
units, XXX therefore received about $5.81 per unit.
 On July 24, 2017, XXX bought 1,970.554 units of PPT for 21.287 units of ETH. On July
24, 2017, the market price of 21.287 units of ETH was $6,318.32.5 To acquire the PPT
 On August 15, 2017, XXX bought 395.6 units of PPT for 6.68 units of ETH. XXX made
this purchase on behalf of his parents (see below).
 From August 19, 2017 to December 24, 2017, XXX sold a total of 55,707.38 units of
PPT for a total of 886.434 units of ETH. These dispositions of PPT took place over the
course of thirteen days: August 19, 2017; August 25, 2017; September 3, 2017;
September 5, 2017; September 6, 2017; September 19, 2017; October 20, 2017; October
21, 2017; November 19, 2017; December 16, 2017; December 22, 2017; December 23,
2017; and December 24, 2017. From August 19, 2017 to December 24, 2017, the average
market value of 886.434 units of ETH was $731,981.74.6 In selling the PPT units, XXX
therefore received about $13.14 per unit.
XXX acquired PPT because he believed that, in the future, this crypto-currency could potentially
generate income by virtue of ownership. In other words, he took PPT as a future means of
earning investment income.
PPT was marketed as a means of investing in the Populous platform, a project aimed at using the
ETH blockchain to facilitate invoice financing. PPT’s publicly available promotional materials
described the platform as follows:
Populous is a P2P (peer-to-peer) invoice discounting platform that is globalizing what is

currently a localized and limited market sector. It is a global invoice trading platform
built on Blockchain's distributed ledger technology. Invoice discounting is a form of
funding that instantly unlocks the cash tied up in outstanding sales invoices. Business
owners allow invoice buyers to buy invoices at a discounted rate in order to unlock their
cash quicker. Once invoices are paid by the invoice debtor, the invoice buyer receives
the amount previously agreed upon.
4
Based on a low of US$132.64 on July 10, 2017 and a high of US$314.75 on August 7, 2017
(https://finance.yahoo.com). Average US-Canada exchange rate in 2017 was 1.30
(www.bankofcanada.ca/rates/exchange/currency-converter).
5
Market opened at US$228.32 per unit of ETH (https://finance.yahoo.com). Average US-Canada exchange rate in
2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-converter).
6
Based on a low of US$200.75 per unit on September 11, 2017 and a high of US$868.89 per unit on December 18,
2017. Average US-Canada exchange rate in 2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-
converter).
To: Mr. XXX 11

November 6, 2018
Populous uniquely connects business owners with invoice buyers on a global scale by
leveraging the security, transparency, and speed of Blockchain via XBRL data, Altman
Z-score formula, smart contracts and stable fiat-pegged tokens. Populous will disrupt
the traditional invoice discounting system by eliminating the need for third parties or
financial institutions by connecting businesses with global invoice buyers directly.
PPT is the Populous Platform Token. This was given during the pre-ICO stage. PPT
can be used to start using the Populous invoice platform. You can provide these tokens
as a form of collateral to receive an investment, and the tokens are returned to you when
the invoice is repaid.
XXX took this description to suggest that PPT would eventually serve as a source of investment
income. He estimates that he invested about $10,000 in PPT’s initial coin offering.
Less than a month after PPT’s initial coin offering, the coin’s market value exploded from $0.39
per unit to about $5.00 per unit through July and August, reaching an average of about $13.00
per unit by December.
XXX feared that a precipitous crash would follow the dramatic rise. Moreover, XXX felt uneasy
that the market value of PPT would swallow the value of his entire crypto-currency portfolio. So,
to guard against a potential crash and rebalance his portfolio, XXX began selling his PPT
holdings in early July of 2017.
Yet XXX was concerned that, if he had attempted to sell all at once, the increased supply of PPT
would only hasten the potential crash of its market price. So, he instead sold PPT in accordance
with the bids that were available. To that end, although XXX would have preferred to sell his
PPT holdings with a single transaction, he sold 109,787.147 PPT units in piecemeal over the
course of 21 days from early July to late December 2017.
XXX also explained that his August 15th purchase of 395.6 PPT was on behalf of his parents.
When XXX described PPT to them, his parents asked that he purchase units for them, and they
provided XXX with the proceeds to do so.
By the end of 2017, XXX had retained 9,306.28 units of PPT.
As of September 13, 2018, XXX still owned 9,306.28 units of PPT, which were valued at
$41,224.08 with an unrealized gain of $29,503.91.
To: Mr. XXX 12

November 6, 2018
Bitcoin Transactions
In 2017, XXX acquired a total of 384.463 Bitcoin for an average cost per unit of $21,005.15, and
he sold a total of 367.124 Bitcoin for a profit of $429,708.36.
From February 28, 2017 to December 22, 2017, XXX carried out a total of 238 transactions
involving Bitcoin: 140 Bitcoin-purchase transactions and 98 Bitcoin-sale transactions. He
carried out Bitcoin transactions in every month from February to December of 2017.
XXX variously purchased Bitcoin with at least 15 different media: Canadian currency, Creditbit,
XRP, ETH, Steem, MAID, PIVX, LTC, STRAT, Dash, OMG, Neo, LSK, QAU, Qtum, CVC,
BTG, and ADX.
XXX variously sold Bitcoin for at least 21 different media: Canadian currency, Creditbit, XRP,
ETH, Steem, HMQ, MAID, Dash, PIVX, XMR, STRAT, CloakCoin, LTC, BCH, Neo, LSK,
OMG, QAU, Qtum, BTG, and SALT.
The market value of Bitcoin exploded in mid-December 2017. For instance, on December 17,
2017, the market value of 1 Bitcoin was over $25,000.00.7 From January 1, 2017 to November
30, 2017, the market value had never exceeded $13,000.00.8
Notably, XXX’s Bitcoin sales for cash also peaked in mid-December 2017. From December 10th
to the end of 2017, XXX sold 19.84 Bitcoin for $361,451.21. XXX only sold Bitcoin for cash in
three other months: in September, he sold 11.767 Bitcoin for $53,959.58; in June, he sold 2.47
Bitcoin for $8,364.79; and, in May, he sold 0.77 Bitcoin for $245.51.
By the end of 2017, XXX had retained 17.339 Bitcoin.
As of September 13, 2018, XXX owned 15.52164844 Bitcoin, which were valued at
$131,477.83 with an unrealized loss of $194,556.71.
7
On December 17, 2017, Bitcoin’s market price opened at US$19,346.60 (https://finance.yahoo.com). Average US-
Canada exchange rate in 2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-converter).
8
Until December 17, 2017, Bitcoin’s peak opening market price had been US$9,906.04 on November 29, 2017
To: Mr. XXX 13

November 6, 2018
ETH Transactions
In 2017, XXX acquired a total of 4,672.97 ETH units for an average cost per unit of $554.58,
and he sold a total of 4,576.73 ETH units for a profit of $116,832.01.
From March 4, 2017 to December 28, 2017, XXX carried out a total of 428 transactions
involving ETH: 214 ETH-purchase transactions and 214 ETH-sale transactions. He carried out
ETH transactions in every month from March to December of 2017.
But these figures include the superfluous transactions resulting from system and market
restrictions. First, XXX often needed to trade through ETH to acquire the coin that he in fact
sought. For instance, he could only use ETH to purchase PPT, and he could only sell PPT for
ETH. Likewise, he could only use ETH to purchase VERI, and he could only sell VERI for ETH.
Granted, some of XXX’s ETH transactions may not have involved a trade through. He may have,
for instance, simply intended to acquire ETH without intending to acquire yet another coin with
ETH. Still, XXX’s 40 transactions involving PPT and his 14 transactions involving VERI could
each have potentially required a superfluous ETH transaction. Further, because of the small-cap
nature of PPT, XXX could only sell PPT in accordance with the bids that were available. To that
end, although XXX would have preferred to sell his PPT holdings with a single transaction, he
sold his PPT units in piecemeal over the course of 21 days from early July to late December
2017.
As a result, XXX performed at least 54 superfluous ETH transactions, which bring his total ETH
transactions down to 374 from March 4, 2017 to December 28, 2017.
XXX variously purchased ETH with at least 13 different media: Canadian currency, Bitcoin,
ZEC, VERI, PPT, ADX, PLR, PAY, SALT, QAU, DGPT, EOS, and ANK.
XXX variously sold ETH for at least 10 different media: Canadian dollars, Bitcoin, ZEC, VERI,
PPT, ADX, PLR, PAY, SALT, and OMG.
The market value of ETH peaked in mid-December of 2017. For instance, on December 20,
2017, the market value of 1 ETH unit was over $1,000.00.9 From January 1, 2017 to November
30, 2017, the market value had never exceeded $620.00.10
9
On December 20, 2017, ETH’s market price opened at US$812.50 (https://finance.yahoo.com). Average US-
10
Until December 20, 2017, ETH’s peak opening market price had been US$475.20 on November 28, 2017
To: Mr. XXX 14

November 6, 2018
Notably, XXX’s ETH sales for cash also peaked in mid-December 2017. From December 12th to
the end of 2017, XXX sold 334 ETH units for $287,949.62. He only sold ETH for cash in three
other months: in September, he sold 206.56 ETH units for $68,073.35; in July, he sold 182 ETH
units for $49,505.52; and, in June, he sold 60.30 ETH units for $29,643.05.
By the end of 2017, XXX had retained 96.22 ETH units.
As of September 13, 2018, XXX still owned 96.22 ETH units, which were valued at $26,033.72
with an unrealized loss of $27,327.53.
VERI Transactions
In 2017, XXX acquired a total of 1,024.164 VERI units for an average cost per unit of $147.11,
and he sold a total of 430.642 VERI units for a profit of $93,968.37.
VERI can only be purchased with or sold for ETH.
From June 8, 2017 to December 18, 2017, XXX carried out a total of 14 transactions involving
VERI: 6 VERI-purchase transactions (including the initial coin offering) and 8 VERI-sale
transactions.
 On June 8, 2017, XXX first bought 570 VERI units through the platform’s initial coin
offering. He acquired the VERI units for 19 ETH units. On June 8, 2017, the market
value of 19 units of ETH was $6,317.52.11 To acquire the VERI units, XXX therefore
spent $11.08 per unit.
 From June 22, 2017 to July 6, 2017, XXX sold a total of 269.909 VERI units for a total
of 119.598 units of ETH. These dispositions of VERI took place over the course of six
days: June 22, 2017; June 24, 2017; June 26, 2017; June 29, 2017; July 5, 2017; and July
6, 2017. From June 22, 2017 to July 6, 2017, the average market value of 119.598 units
of ETH was $58,796.89.12 In selling the VERI units, XXX therefore received about
$491.62 per unit.
11
12
Based on a low of US$211.47 on June 27, 2017 and a high of US$333.40 on June 22, 2017
To: Mr. XXX 15

November 6, 2018
 On July 6, 2017, XXX bought 0.06 VERI for 0.048 ETH. On June 6, 2017, the market
value of 0.048 ETH was $15.46.13 To acquire the VERI, XXX therefore spent $257.67
per unit.
 On July 9, 2017, XXX sold 40.733 VERI units for 30.241 ETH units. On July 9, 2017,
the market value of 30.241 ETH units was $9,658.10.14 In selling the VERI units, XXX
therefore received $237.11 per unit.
 On July 20, 2017, XXX bought 124.68 VERI units for 112.091 ETH units. On July 20,
2017, the market value of 112.091 ETH units was $28,329.09.15 To acquire the VERI
 On July 22, 2017, XXX bought 61.732 VERI units for 61.298 ETH units. On July 22,
2017, the market value of 61.298 ETH units was $17,238.78.16 To acquire the VERI
 On August 8, 2017, XXX bought 115.184 VERI units for 63.314 ETH units. On August
8, 2017, the market price of 63.314 ETH units was $22,218.28.17 To acquire the VERI
 On September 3, 2017, XXX bought 152.508 VERI units for 41 ETH units. On
September 3, 2017, the market price of 41 ETH units was $18,709.90.18 To acquire the
VERI units, XXX therefore spent $122.681 per unit.
 On December 18, 2017, XXX sold 120 VERI units for 45.888 ETH units. On December
18, 2017, the market price of 45.888 ETH units was $42,815.75.19 In selling the VERI
units, XXX therefore received $356.80 per unit.
XXX acquired VERI because he believed that, in the future, this crypto-currency could
potentially generate income by virtue of ownership. In other words, he took VERI as a future
means of earning investment income.
13
14
On July 9, 2017, ETH market price opened at US$245.67 (https://finance.yahoo.com). Average US-Canada
15
16
17
On August 8, 2017, ETH market price opened at US$269.94 (https://finance.yahoo.com). Average US-Canada
18
On September 3, 2017, ETH market price opened at US$351.03 (https://finance.yahoo.com). Average US-Canada
19
On December 18, 2017, ETH market price opened at US$717.73 (https://finance.yahoo.com). Average US-
To: Mr. XXX 16

November 6, 2018
Marketing materials for the VERI platform boasted that owners could rent their VERI tokens to
users wishing to access the platform’s trading research tools. XXX purchased VERI on the basis
of these marketing materials. Specifically, VERI’s publicly available promotional materials
described the platform as follows:
Veritaseum provides its users and clients with several tools dedicated to trading and
financial markets. The main component of Veritaseum is the VeADIR (Veritaseum
Autonomous, Dynamic, Interactive Research) trading platform, which is an autonomous
financial machine, or trading algorithm, that exposes VeADIR users to a number of
trading opportunities, including strong buy positions and highlights of undervalued or
under-reported assets.
The assets found on the VeADIR platform consist partially of the tokenized
(“Veritized”) sub-assets. Essentially, stocks, commodities, and other investment
vehicles can be pegged to Veritas (VERI) sub-tokens, to be traded on Veritaseum
systems such as its in-house exchange, VeRent, or on independent markets that
incorporate the Veritized tokens. VeRent also allows users to buy, sell, or rent VERI.
Users may look to rent VERI tokens for temporary access or usage of components of
VeADIR which require VERI fees, paid to the development team, to use. Additionally,
license holders can rent or resell their access to VeADIR through VeRent.
XXX took this description to suggest that VERI would eventually serve as a source of
investment income.
Less than a month after VERI’s initial coin offering, the coin’s market value exploded from
$11.08 per unit to almost $500.00 per unit. XXX feared that a precipitous crash would follow.
Moreover, XXX felt uneasy that the market value of VERI would swallow the value of his entire
crypto-currency portfolio. So, to guard against a potential crash and rebalance his portfolio, XXX
began selling his VERI holdings in late June of 2017.
Yet XXX was concerned that, if he had attempted to sell all at once, the increased supply of
VERI would only hasten the potential crash of its market price. So, because of the small-cap
nature of VERI, XXX could only sell VERI in accordance with the bids that were available. To
that end, although XXX would have preferred to sell his VERI holdings with a single
transaction, he sold 269.909 VERI units in piecemeal over the course of six days from late June
to early July 2017.
To: Mr. XXX 17

November 6, 2018
By the end of July, VERI’s market price had stabilized to around $250.00 per unit. XXX
therefore decided to reinvest in VERI; he purchased 454.104 VERI units from late July to early
September 2017 and spent between $122.681 and $279.25 per unit. Again, because of the small-
cap nature of VERI, XXX could only buy VERI in accordance with the bids that were available.
This resulted in his buying the 454.104 VERI units over the course of four transactions (instead
of one transaction) from July 20, 2017 to September 3, 2017.
By the end of 2017, XXX had retained 593.522 VERI units.
As of September 13, 2018, XXX still owned 593.522 VERI units, which were valued at
LTC Transactions
In 2017, XXX acquired a total of 3,133.52 LTC units for an average cost per unit of $256.31,
and he sold a total of 1,721.87 LTC units for a profit of $79, 649.87.
XXX purchased LTC with Canadian dollars, Bitcoin, or Dash. He sold LTC for either Canadian
dollars or Bitcoin.
From April 22, 2017 to December 29, 2017, XXX carried out a total of 23 transactions involving
LTC: 14 LTC-purchase transactions and 9 LTC-sale transactions.
 On April 22, 2017, XXX bought 30.02 LTC units for 0.337 Bitcoin. On April 22, 2017,
the market value of 0.337 Bitcoin was $547.47.20 To acquire the LTC units, XXX
therefore spent $18.24 per unit.
 On May 27, 2017, he sold 30.02 LTC units for 0.332 Bitcoin. On May 27, 2017, the
market value of 0.332 Bitcoin was $968.89.21 In selling the LTC units, XXX therefore
received $32.27 per unit.
 On June 29, 2017, he bought 205.91 LTC units for 3.32 Bitcoin. On June 29, 2017, the
market value of 3.32 Bitcoin was $11,125.53.22 To acquire the LTC units, XXX therefore
spent $54.03 per unit.
20
On April 22, 2017, Bitcoin’s market price opened at US$1,249.64 (https://finance.yahoo.com). Average US-
21
On May 27, 2017, Bitcoin’s market price opened at US$2,244.89 (https://finance.yahoo.com). Average US-
22
On June 29, 2017, Bitcoin’s market price opened at US$2,577.74 (https://finance.yahoo.com). Average US-
To: Mr. XXX 18

November 6, 2018
 From July 2, 2017 to July 13, 2017, he bought a total of 931.36 LTC units for a total of
18.10 Bitcoin. These purchases of LTC took place over the course of four days: July 2,
2017; July 9, 2017; July 12, 2017; and July 13, 2017. From July 2, 2017 to July 13, 2017,
the average market value of 18.10 Bitcoin was $84,506.73.23 To acquire the LTC units,
XXX therefore spent about $90.73 per unit.
 On July 26, 2017, he bought 297.92 LTC units for 66.09 Dash units.
 On August 29, 2017, he sold 100 LTC units for $7,800.00 and thus received $78.00 per
unit.
 On October 12, 2017, he sold 199.56 LTC units for 2.115 Bitcoin. On October 12, 2017,
the market value of 2.115 Bitcoin was $13,264.14.24 In selling the LTC units, XXX
 On October 20, 2017, he sold 100 LTC units for 1.001 Bitcoin. On October 20, 2017, the
market value of 1.001 Bitcoin was $7,415.61.25 In selling the LTC units, XXX therefore
 On October 20, 2017, he sold 500 LTC units for $36,903.35 and thus received $73.81 per
unit.
 On October 30, 2017, he bought 1.11 LTC units for 0.0103 Bitcoin.
 On November 8, 2017, he bought 458.57 LTC units for 3.99 Bitcoin. On November 8th,
the market value of 3.99 Bitcoin was $36,839.27.26 To acquire the LTC units, XXX
therefore spent $80.34 per unit.
 On November 14, 2017, he sold 458.57 LTC units for 4.17 Bitcoin. On November 14th,
the market value of 4.17 Bitcoin was $35,520.83.27 In selling the LTC units, XXX
 On December 12, 2017, he bought 120.009 LTC units for $34,202.51 and thus spent
$285.00 per unit.
$366.87 per unit.
 On December 14, 2017, he sold 17.4 LTC units for $6,000.00 and thus received $344.83
per unit.
23
Based on a low of US$2,262.08 on July 12, 2017 and a high of US$2,658.73 on July 4, 2017
24
On October 12, 2017, Bitcoin’s market price opened at US$4,824.20 (https://finance.yahoo.com). Average US-
25
On October 20, 2017, Bitcoin’s market price opened at US$5,698.62 (https://finance.yahoo.com). Average US-
26
On November 8, 2017, Bitcoin’s market price opened at US$7,102.23 (https://finance.yahoo.com). Average US-
27
On November 14, 2017, Bitcoin’s market price opened at US$6,522.45 (https://finance.yahoo.com). Average US-
To: Mr. XXX 19

November 6, 2018
$396.97 per unit.
 On December 22, 2017, he sold 299.65 LTC units for $71,091.25 and thus received
$237.25 per unit.
$241.10 per unit.
 On December 26, 2017, he sold 16.67 LTC units for $6,000.00 and thus received $359.93
per unit.
$340.48 per unit.
By the end of 2017, XXX had retained 1,411.65 LTC units.
As of September 13, 2018, XXX owned 1,395.027 LTC units, which were valued at $99,208.21
with an unrealized loss of $258,351.15.
SALT Transactions
In 2017, XXX acquired a total of 40,865.39 SALT units for an average cost per unit of $8.69,
and he sold a total of 34,535.33 SALT units for a profit of $69,349.81.
By the end of 2017, he had retained 6,330.06 SALT units in his wallet with the crypto-currency
exchange. Yet it appears that the SALT platform erroneously duplicated XXX’s transfers and
forwarded an additional 13,400 SALT units to his wallet. This anomaly is discussed in more
detail below.
As of September 13, 2018, XXX owned 19,599.18 SALT units, which were valued at
XXX purchased SALT units with either ETH or Bitcoin. He sold SALT units for either ETH or
Bitcoin.
From August 15, 2017 to December 21, 2017, XXX carried out a total of 11 transactions
involving SALT: 5 SALT-purchase transactions (including the initial coin offering) and 6 SALT-
sale transactions.
To: Mr. XXX 20

November 6, 2018
 On August 15, 2017, XXX first bought 17,334 SALT units through the platform’s initial
coin offering. He acquired the SALT units for 187.18 ETH units. On August 15, 2017,
the market value of 187.18 ETH units was $72,795.80.28 To acquire the SALT units,
XXX therefore spent $4.20 per unit.
 On August 16, 2017, he sold 461.7 SALT units for 5 ETH units. On August 16, 2017, the
market value of 5 ETH units was $1,862.38.29 In selling the SALT units, XXX therefore
 On October 8, 2017, he sold 6,376.034 SALT units for 69.231 ETH units. On October 8,
2017, the market value of 69.231 ETH units was $28,013.49.30 In selling the SALT units,
XXX therefore received $4.39 per unit.
 On October 11, 2017, he sold 8,851.49 SALT units for 112.46 ETH units. On October 11,
2017, the market value of 112.46 ETH units was $43,634.26.31 In selling the SALT units,
XXX therefore received $4.93 per unit.
 On October 14, 2017, he sold 15,384.701 SALT units for 595.881 ETH units. On October
14, 2017, the market value of 595.881 ETH units was $260,923.78.32 In selling the SALT
units, XXX therefore received $16.96 per unit.
 On October 14, 2017, he bought 461.7 SALT units for 9.22 ETH units. On October 14,
2017, the market value of 9.22 ETH units was $4,037.24.33 To acquire the SALT units,
 On December 2, 2017, he bought 2,956.91 SALT units for 1.29 Bitcoin. On December 2,
2017, the market value of 1.29 Bitcoin was $18,214.69.34 To acquire the SALT units,
 On December 4, 2017, he bought 14,005.8 SALT units for 8.044 Bitcoin. On December
4, 2017, the market value of 8.044 Bitcoin was $117,582.85.35 To acquire the SALT
28
On August 15, 2017, ETH’s market price opened at US$299.16 (https://finance.yahoo.com). Average US-Canada
29
On August 16, 2017, ETH’s market price opened at US$286.52 (https://finance.yahoo.com). Average US-Canada
30
On October 8, 2017, ETH’s market price opened at US$311.26 (https://finance.yahoo.com). Average US-Canada
31
32
33
Ibid.
34
35
To: Mr. XXX 21

November 6, 2018
 On December 9, 2017, he sold 1,693.18 SALT units for 0.89 Bitcoin. On December 9,
2017, the market value of 0.89 Bitcoin was $18,567.74.36 In selling the SALT units, XXX
 On December 13, 2017, he bought 6,106.97 SALT units for 2.72 Bitcoin. On December
13, 2017, the market value of 2.72 Bitcoin was $60,408.67.37 To acquire the SALT units,
 On December 21, 2017, he sold 1,777.5 SALT units for 1 Bitcoin. On December 21,
2017, the market value of 1 Bitcoin was $21,399.42.38 In selling the SALT units, XXX
XXX recorded the above-listed transactions on a spreadsheet that he used to track his SALT
transactions. XXX initially acquired SALT units from the platform’s initial coin exchange.
These initial units were held in XXX’s SALT-platform account. He then transferred these units
to his digital wallet with the crypto-currency exchange, Ether Delta.39 Ether Delta did not list
XXX’s transaction history. So, XXX contemporaneously tracked these transactions on a
spreadsheet.
Notably, the spreadsheet figures do not add up. From August 16, 2017 to October 14, 2017, he
sold a total of 31,073.224 SALT units without any intervening SALT purchases. But he only
received 17,334 SALT units from the SALT platform’s initial coin offering.
XXX believes that, on October 13, 2017, his SALT-platform account erroneously duplicated his
withdrawals and forwarded SALT units to his Ether Delta wallet without his knowledge or
consent.
As of September 21, 2018, XXX’s SALT-platform account lists his SALT balance as overdrawn
by 13,345.24 units. The SALT-platform account lists the following transaction history:
 On August 15, 2017, XXX first bought 17,354.82 SALT units through the platform’s
initial coin offering. He acquired the SALT units for 187.18 ETH units, which were
worth $52,064.50.
36
37
On December 13, 2017, Bitcoin’s market price opened at US$17,083.90 (https://finance.yahoo.com). Average
US-Canada exchange rate in 2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-converter).
38
On December 21, 2017, Bitcoin’s market price opened at US$16,461.09 (https://finance.yahoo.com). Average
US-Canada exchange rate in 2017 was 1.30 (www.bankofcanada.ca/rates/exchange/currency-converter).
39
After acquiring the SALT units from SALT’s initial coin offering, Lukasz used the Ether Delta exchange for the
transactions from August 16, 2017 to October 14, 2017 and the Bittrex exchange for the transactions from December
2, 2017 to December 21, 2017.
To: Mr. XXX 22

November 6, 2018
 On September 29, 2017, the SALT platform charged its annual membership fee of 100
SALT units.
 On September 29, 2017, there was a withdrawal of 7,000 SALT units with a transaction
fee of 0.02 SALT units.
 On October 10, 2017, there was a withdrawal of 7,000 SALT units with a transaction fee
of 0.02 SALT units.
 On October 11, 2017, there was a withdrawal of 3,200 SALT units with a transaction fee
of 0.02 SALT units.
 On October 13, 2017, there were three withdrawals of SALT units: two of 3,200 each and
one of 7,000. Each transaction was time-stamped at 10:09 p.m., and no transaction fee
was applied to any of these transactions.
It appears that the three SALT withdrawals on October 13, 2017 may not have been of XXX’s
doing. They occurred on exactly the same date and time. They were the only withdrawals
without a corresponding transaction fee. And the sum of these three withdrawals is 13,400,
which reflects the amount of XXX’s overdrawn SALT balance.
Yet XXX seemingly took advantage of this windfall. On October 13th, the SALT platform may
have erroneously forwarded 13,400 SALT units to XXX’s crypto-currency wallet. The very next
day, XXX sold 15,384.701 SALT units from his wallet for 595.881 ETH units and thus received
$16.96 per SALT unit—his highest receipt per SALT unit in 2017.
ANALYSIS
Introduction
Canada has yet to enact legislation—tax or otherwise—dealing expressly with crypto-currency

or crypto-currency transactions. Likewise, Canadian courts have yet to decide upon a tax issue
relating to crypto-currency or crypto-currency transactions.
The CRA, however, has provided guidance—albeit sparse—on the tax implications of
transactions involving crypto-currency. The CRA views crypto-currency as a commodity, which
can be bartered for goods or services, or purchased and sold like securities. 40 Either way, the
40
Canada Revenue Agency, “What you should know about digital currency,” November 11, 2013
https://www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2013/what-you-should-know-
about-digital-currency.html.
To: Mr. XXX 23

November 6, 2018
CRA acknowledges that the profit or loss from a crypto-currency transaction can be on account
of either capital or income.41
Yet the CRA has indicated that it will allow a taxpayer to report a commodity transaction on
account of capital so long as the taxpayer’s reporting remains consistent from year to year. 42 In
particular, the CRA will allow the taxpayer to report gains or losses from commodities
transactions in accordance with the tax treatment that he or she prefers—i.e., on account of either
capital or income.
But the CRA will not extend this preferential-reporting allowance to a taxpayer (1) who opted
for business-income treatment in 1976 or a subsequent year; (2) whose transactions are part of a
business operation that uses commodities (e.g., a distillery); (3) whose transactions are based on
special insider information (e.g., a senior officer of a sugar refinery who personally enters into
transactions in sugar); or (4) that is a corporation whose prime or sole activity is trading in
commodities. The CRA insists on income treatment for a person falling within any of these four
categories. In addition, if a taxpayer changes from capital-gains treatment to business-income
treatment, the CRA may reassess the taxpayer’s returns and treat the gains and losses for those
years on a consistent basis.43
Still, three reasons should discourage us from relying on the CRA’s preferential-reporting
allowance with respect to XXX’s crypto-currency transactions. First, the CRA’s interpretative
publications do not have the force of law, and the CRA’s view is indeed contrary to law. The
taxpayer’s intention—not consistency in reporting—determines whether proceeds from a
transaction should be on account of income or capital. Further, the doctrine of estoppel does not
preclude the CRA from issuing an assessment that is inconsistent with a previously released
publication.44 Second, the preferential-reporting allowance stems from a publication that the
CRA released in 1978, and it is unclear whether the CRA still maintains this view. Finally,
although the CRA views crypto-currency as a commodity, the CRA may refrain from extending
to crypto-currencies the preferential treatment for commodities. Indeed, as differences between
commodities and crypto-currencies emerge, the CRA might even walk back its prior analogy
between the two.
41
Ibid; Canada Revenue Agency, Interpretation Bulletin IT-490 – Barter Transactions, July 5, 1982; Canada
Revenue Agency, Interpretation Bulletin IT-479R – Transactions in Securities, February 29, 1984; Canada Revenue
Agency, Interpretation Bulletin IT-346R – Commodity Futures and Certain Commodities, November 20, 1978.
42
Canada Revenue Agency, Interpretation Bulletin IT-346R – Commodity Futures and Certain Commodities,
November 20, 1978.
43
Canada Revenue Agency, Technical Interpretation, Document no. 9829965 (1998).
44
Stickel v MNR, [1973] CTC 202, 73 DTC 5178 (FCA); aff’d. [1974] CTC 416, 74 DTC 6268 (SCC).
To: Mr. XXX 24

November 6, 2018
The remainder of this memorandum progresses in two steps. First, it provides a detailed review
of the legal principles speaking to the distinction between capital gains and business income.
Second, it applies these principles to discern whether the sale proceeds from XXX’s crypto-
currency transactions are capital gains or business income.
Capital or Income: Distinguishing Between Trading and Investing
The ITA recognizes only two broad sorts of property for tax purposes:
 a capital property, which creates a capital gain or loss upon disposition; and
 inventory, which figures into the computation of business income.45
The type of income that the property generates upon sale—that is, capital gains or business
income—determines whether that property is a capital property or inventory. 46 In other words,
one starts by determining the nature of the income and then characterizes the property, not the
other way around.
Yet the ITA offers minimal guidance on determining whether the profit or loss stemming from a
disposition of property should be on account of income or capital. The ITA essentially defines a
“capital gain” as a gain from the disposition of property that would not be taxed as ordinary
income.47 It defines a “capital loss” in similar terms.48 The ITA’s guidance on characterizing
business income proves equally unhelpful. It defines a “business” as including “a trade” and “an
adventure or concern in the nature of trade.” 49 But it does not define “trade” or “adventure or
concern in the nature of trade.” As a result, common-law principles serve to demarcate whether
proceeds from a sale are a capital gain or business income.
Basically, the proceeds from XXX’s crypto-currency transactions are business income and thus
fully taxable if XXX was either:
 engaged in an adventure or concern in the nature of trade; or

 a trader.
45
Friesen v Canada, [1995] 3 SCR 103, at para 28.
46
Ibid.
47
ITA, s. 39(1)(a).
48
Ibid, s. 39(1)(b).
49
Ibid, s. 248(1), “business.” The definition of a business, however, excludes “an office or employment.”
To: Mr. XXX 25

November 6, 2018
The following sections explain the principles relevant to discerning whether a person is either
engaged in an adventure in the nature of trade or a trader. After shedding light on the relevant
principles, we apply them to XXX’s crypto-currency transactions.
An Adventure in the Nature of Trade: A Single Transaction With Intent to Resell for Profit
An adventure or concern in the nature of trade is “an isolated transaction (which lacks the
frequency or system of a trade) in which the taxpayer buys property with the intention of selling it at
a profit and then sells it (normally at a profit, but sometimes at a loss).”50 In other words, a taxpayer
may carry on a business even if he or she engaged in an isolated purchase and sale of a single asset.
Courts observe several criteria to determine whether a disposition of property was an adventure
in the nature of trade:51
 The nature of the property sold. Although virtually any form of property may be
acquired to be dealt in, those forms of property, such as manufactured articles,
which are generally the subject of trading only are rarely the subject of
investment. Property which does not yield to its owner an income or personal
enjoyment simply by virtue of its ownership is more likely to have been acquired
for the purpose of sale than property that does.
 The length of period of ownership. Generally, property meant to be dealt in is
realized within a short time after acquisition. Nevertheless, there are many
exceptions to this general rule.
 The frequency or number of other similar transactions by the taxpayer. If the
same sort of property has been sold in succession over a period of years or there
are several sales at about the same date, a presumption arises that there has been
dealing in respect of the property.
 Work expended on or in connection with the property realized. If effort is put into
bringing the property into a more marketable condition during the ownership of
the taxpayer or if special efforts are made to find or attract purchasers (such as
the opening of an office or advertising) there is some evidence of dealing in the
property.
 The circumstances that were responsible for the sale of the property. There may
exist some explanation, such as a sudden emergency or an opportunity calling for
ready money, that will preclude a finding that the plan of dealing in the property
was what caused the original purchase.
50
.Peter W. Hogg, Joanne E. Magee, & Jinyan Li, Principles of Canadian Income Tax Law, 5th ed (Carswell:
Toronto, 2013), at 333; cited with approval in Canada Safeway Limited v Canada, 2008 FCA 24, at para 40.
51
Also see: Freisen v Canada, [1995] 3 SCR 103, at paras 15-17.
To: Mr. XXX 26

November 6, 2018
 Motive. The motive of the taxpayer is never irrelevant in any of these cases. The
intention at the time of acquiring an asset as inferred from surrounding
circumstances and direct evidence is one of the most important elements in
determining whether a gain is of a capital or income nature.52
The taxpayer’s motive or intent at the time of acquiring the property is the most important
criterion that courts consider when distinguishing between an adventure in the nature of trade
and an investment.53
To discern a taxpayer’s intention on acquiring the property, courts focus on the objective factors
surrounding both the purchase and the sale of that property. In other words, courts determine a
taxpayer’s intent by looking at the nature of the property sold, the length of ownership, the
frequency of transactions, the work expended to attract purchasers, and the circumstances
surrounding the sale.54
Of course, a taxpayer may have more than one motivation for purchasing a property. The
taxpayer might, for instance, acquire property with a primary intention of using it in a non-
speculative way but an alternate intention of selling it at a profit if the primary purpose proves
unworkable. If the taxpayer sells the property in accordance with the alternate or secondary
intention, the profit will be on account of income rather than capital.
Regal Heights v MNR55 is the leading case on secondary intention doctrine. In Regal Heights, the
taxpayer acquired undeveloped land with the primary intention of building a shopping mall on
the site. The taxpayer began developing the area. But the taxpayer abandoned the plan after
discovering that another shopping mall was being built only two miles away from the taxpayer’s
lot. In response, the taxpayer sold the land at a profit. The Supreme Court of Canada held that the
profit was business income. The Court found that the taxpayer’s primary intention was to
develop a shopping mall on the land. But the Court also observed that the taxpayer understood
that the shopping-mall plan had a good chance of failing, and the taxpayer’s secondary intention
was to sell the land at a profit should the shopping-mall plan fail. The Court decided that the
existence of the secondary intention made the sale an adventure in the nature of trade.
52
Happy Valley Farms Ltd v Her Majesty the Queen, 86 DTC 6421 (FCTD), at para 14.
53
Happy Valley Farms Ltd v Her Majesty the Queen, 86 DTC 6421 (FCTD), at para 14 (The taxpayer’s “motive or
intention, in addition to consideration of the taxpayer’s whole course of conduct while in possession of the asset, is
what in the end generally influences the finding of the Court.”); Peter W. Hogg, Joanne E. Magee, & Jinyan Li,
Principles of Canadian Income Tax Law, 8th ed (Carswell: Toronto, 2013), at 360.
54
Ibid.
55
Regal Heights v MNR, [1960] CTC 384, 60 DTC 1270 (SCC).
To: Mr. XXX 27

November 6, 2018
The Federal Court of Appeal has since clarified that the secondary intention to sell must exist at
the time that the taxpayer acquired the property, and it must have been a reason that motivated
the taxpayer to acquire the property. 56 For instance, in Canada Safeway Limited v Canada,57 a
corporate taxpayer, who operated a grocery chain, sold its joint-venture interest in a piece of land on
which the taxpayer intended to build a shopping centre. The taxpayer entered the joint venture on
the basis that the shopping centre’s construction would allow it to capture the grocery market in an
area of increasing residential growth. The land was zoned as residential. So, to begin constructing
the shopping centre, the taxpayer would need to rezone the land as commercial. The rezoning failed,
and the taxpayer sold its interest in the joint venture. Despite the taxpayer’s seeming long-term
interest for the joint venture, the Federal Court of Appeal held that the sale was an adventure in the
nature of trade. The court found that the taxpayer’s joint-venture partner enticed the taxpayer into
entering the joint venture with a contingency plan should rezoning not take place. In this case, the
two would sell the land to a residential developer for an anticipated profit. Indeed, the taxpayer’s
joint-venture agreement contemplated both scenarios. The court thus concluded that, when the
taxpayer entered the joint-venture agreement, it had a secondary intention to profit from selling its
interest. The court characterized the taxpayer’s intention as a “dual intention, as opposed to an
alternative intention.”58
The following two sections illustrate these principles with (i) cases finding that a taxpayer
engaged in an adventure in the nature of trade and (ii) cases finding that a taxpayer did not
engage in an adventure in the nature of trade. Afterwards, the memo discusses the general
principles emerging from the jurisprudence on adventure in the nature of trade and applies them
to XXX’s facts.
Cases Finding that Taxpayer Engaged in Adventure in the Nature of Trade
In Dube v R,59 the court assessed the taxpayer’s intention by looking at the taxpayer’s skill, the
period of ownership, and the frequency of transactions. The taxpayer was a building inspector.
He purchased a building and sold it within six months. He used the sale profit to purchase a
second building, which he again sold within six months. He finally purchased a third building,
which he used as his residence and office. The Tax Court of Canada held that the profits from the
two building sales were business income. The court concluded that the taxpayer intended to sell
the buildings rather than keep them for rental purposes. The taxpayer testified that he only sold
56
Riecher v R, [1975] CTC 659, 76 DTC 6001 (FCA); Hiwako Investments v R, [1978] CTC 378, 78 DTC 6281
(FCA).
57
Canada Safeway Limited v Canada, 2008 FCA 24.
58
Ibid, at para 71.
59
Dube v R, [2007] 2 CTC 2437, 2007 DTC 468 (TCC).
To: Mr. XXX 28

November 6, 2018
the buildings when he realized that he could not afford the renovations required to turn the
buildings into rental properties. Moreover, the taxpayer alleged that he came to this realization
after he purchased the buildings. The taxpayer’s testimony failed to convince the court. The court
reasoned that, had he intended to retain the two buildings, the taxpayer would have inspected
them and determined renovation costs before purchasing them. In support, the court pointed to
the taxpayer’s skills as a building inspector.
In Zsebok v the Queen,60 the taxpayer’s full-time employment required him to keep abreast of
developments in the international market and allowed him to trade during work hours. As a
result, the taxpayer sat in front of his office computer for long hours daily and monitored his
personal-investment data. The court held that the extent of the taxpayer’s trading and research
time indicated that his securities transactions constituted an adventure in the nature of trade. The
taxpayer’s losses were thus on account of income. Zsebok suggests that courts require an
extensive time commitment before concluding that a taxpayer’s transactions constitute trading.
Generally, courts presume that a property without a personal-use dimension and unable to yield
income—e.g., commodities—is purchased for resale.61 As a result, any profit or loss on
disposing of that property is on account of income. For instance, in MNR v Taylor,62 a taxpayer,
in an isolated transaction, purchased 1,500 tons of lead, which he then sold for a profit. The court
held that the transaction was an adventure in the nature of trade, which meant that the taxpayer’s
profit was on account of income. The court’s reasoning pointed out that the taxpayer could do
nothing but sell such an asset. Likewise, courts have reached the same conclusion where the
transaction involved commercial quantities of toilet paper, 63 whiskey,64 sugar,65 and sulfuric
acid.66 In Freisen v Canada,67 the Supreme Court of Canada decided that a loss from a
disposition of land was on account of business income because the “land involved was
undeveloped real estate which was suitable for resale but unsuitable as an income producing
investment or for the personal enjoyment of [the taxpayer].”68
60
Zsebok v the Queen, 2012 TCC 99.
61
Peter W. Hogg, Joanne E. Magee, & Jinyan Li, Principles of Canadian Income Tax Law, 8th ed (Carswell: Toronto,
2013), at 361.
62
MNR v Taylor, [1956] CTC 189, 56 DTC 1125 (Ex. Crt.)
63
Rutledge v CIR, (1929) 14 TC 490 (Scotland Ct. Sess.)
64
CIR v Fraser (1942) 24 TC 498 (Scotland Ct. Sess.)
65
Atlantic Sugar Refineries v MNR, [1948] CTC 326 (Ex. Crt.); affirmed [1949] CTC 196, 49 DTC 602 (SCC).
66
Honeyman v MNR, [1955] CTC 151, 55 DTC 1094 (Ex. Crt.)
67
Friesen v Canada, [1995] 3 SCR 103.
68
Ibid, at para 18.
To: Mr. XXX 29

November 6, 2018
In Canada Safeway Limited v Canada,69 (discussed above) a corporate taxpayer, who operated a
grocery chain, sold its joint-venture interest in a piece of land on which the taxpayer intended to
build a shopping centre. The taxpayer entered the joint venture on the basis that the shopping
centre’s construction would allow it to capture the grocery market in an area of increasing
residential growth. The land was zoned as residential. So, to begin constructing the shopping centre,
the taxpayer would need to rezone the land as commercial. The rezoning failed, and the taxpayer
sold its interest in the joint venture. Despite the taxpayer’s seeming long-term interest for the joint
venture, the Federal Court of Appeal held that the sale was an adventure in the nature of trade. The
court found that the taxpayer’s joint-venture partner enticed the taxpayer into entering the joint
venture with a contingency plan should rezoning not take place. In this case, the two would sell the
land to a residential developer for an anticipated profit. Indeed, the taxpayer’s joint-venture
agreement contemplated both scenarios. The court thus concluded that, when it entered the joint-
venture agreement, the taxpayer had a secondary intention to profit from selling its interest. The
court characterized the taxpayer’s intention as a “dual intention, as opposed to an alternative
intention.”70
The court in Zsebok v the Queen71 held that a taxpayer engaged in an adventure in the nature of
trade. During the four years at issue, the taxpayer performed 93 share trades in his margin
account and 12 trades in his RSP account. The taxpayer’s strategy “was to identify highly volatile
shares trading in high volume with a view to maximizing his earnings while playing the
range.”72 His average duration for holding a share was about 60 days, but many shares were held
for only a few days or hours. The court made the following observations about the taxpayer’s
activities:
 He “tended to trade in only three stocks, with an average value of about $10. In 2001, the
number of shares purchased was 20,500, the number sold was 32,600. In 2002, 70,800
purchased, 22,700 sold. In 2003, 311,900 purchased, 345,000 sold. In 2004, 151,000
purchased, 66,000 sold.”73
 “Whenever the [taxpayer] had enough cash on hand or sufficient borrowing power, he was
back in the market, hoping to make a few pennies on each transaction eventually adding up
to a big profit.”74
 “He was heavily over-leveraged, a fact often indicative of a speculative intent.
Nevertheless, his trading continued apace, until the range flattened or the Appellant’s funds
69
70
Ibid, at para 71.
71
72
Ibid, at para 17.
73
Ibid, at 18.
74
Ibid, at para 20.
To: Mr. XXX 30

November 6, 2018
ran out. Oftentimes, what small gains he made during these trading skirmishes were wiped
out by commissions and borrowing costs.”75
 “With the possible exception of Nortel, none of the shares traded by the Appellant was of
the ‘blue chip’ variety.”76
These findings led the court to conclude that the taxpayer had engaged in an adventure in the
nature of trade and thereby incurred business losses from the trades in his margin account and
RSP.
In Mittal v The Queen,77 the court held that a taxpayer’s losses from share transactions were fully
deductible business losses because the taxpayer had engaged in an adventure in the nature of
trade. The court based its decision its findings that: (1) the taxpayer performed 160 trades
throughout the year (even though the taxpayer averaged only about three trades per week); (2)
the taxpayer testified that his intention was “to be a good enough trader to earn ongoing profits
from trading activity”78; and (3) the taxpayer spent approximately 25 hours each week on trading
and research.79
Finally, in Wong v The Queen,80 the court concluded that a taxpayer’s proceeds from selling
shares were business income because the taxpayer was “a classic example of someone engaged
in an adventure in the nature of trade.”81 In particular, during the five years at issue, the taxpayer
performed over 600 transactions, purchasing over 226,000 and selling over 216,000 shares in
blue-chip stocks. Further, the taxpayer held most securities for no more than a few days, with
some being purchased and sold on the same day.
Cases Finding No Adventure in the Nature of Trade
In both MNR v Lawee82 and Montfort Lakes Estates v R,83 the Federal Court found that the
respective taxpayers had acquired land to provide security against inflation over a long term
without any intention for a quick resale. In Lawee, the taxpayer held the land for nine years
75
Ibid.
76
Ibid, at para 21.
77
Mittal v The Queen, 2012 TCC 417.
78
Ibid, at para 23.
79
Ibid, at para 27.
80
Wong v The Queen, 2013 TCC 130.
81
Ibid, at para 34.
82
MNR v Lawee, [1972] CTC 359, 72 DTC 6342 (Fed. TD)
83
Montfort Lakes Estates v R, [1980] CTC 27, 79 DTC 5467 (Fed. TD)
To: Mr. XXX 31

November 6, 2018
before selling; in Montfort, the taxpayer sold the land 18 years after purchase. As a result, in both
cases, the court held that the profit was a capital gain.
A securities transaction is generally presumed to be an investment and thus on capital account.

In Irrigation Industries v MNR,84 the Supreme Court of Canada held that the profits from a
disposition of shares were on account of capital even though the taxpayer purchased the shares a
month prior to the sale with borrowed funds. The Court affirmed a presumption that a taxpayer is
investing when he or she deals with shares:
In my opinion, a person who puts money into a business enterprise by the purchase
of the shares of a company on an isolated occasion, and not as a part of his regular
business, cannot be said to have engaged in an adventure in the nature of trade
merely because the purchase was speculative in that, at that time, he did not intend to
hold the shares indefinitely, but intended, if possible, to sell them at a profit as soon
as he reasonably could. I think that there must be clearer indications of "trade" than
this before it can be said that there has been an adventure in the nature of trade. ...
Corporate shares are in a different position because they constitute something the
purchase of which is, in itself, an investment. They are not, in themselves, articles of
commerce, but represent an interest in a corporation which is itself created for the
purpose of doing business. Their acquisition is a well-recognized method of investing
capital in a business enterprise.85
Mutual-fund transactions also give rise to a presumption of investment.86
In Wood v MNR,87 the Supreme Court of Canada noted that the use of personal savings instead of
borrowed funds to purchase the disposed property “was consistent with the making of personal
investments out of [one’s] savings and not with the carrying on of a business.”88 In this case, the
taxpayer purchased 13 mortgages at a discount; he funded the purchases exclusively with his
savings. He then realized a profit when the mortgages reached maturity. The Court held that the
taxpayer’s profits were on account of capital.
84
Irrigation Industries Ltd v MNR, [1962] SCR 346, 1962 CanLII 55 (SCC).
85
Ibid, at 350-352.
86
Eg., see: Goorah v The Queen, 2001 CanLII 753 (TCC), at para 63. Also see: Mandryk v The Queen, 89 DTC
5062.
87
Wood v MNR, [1969] CTC 57, 69 DTC 5073
88
Ibid, at 60, 5075.
To: Mr. XXX 32

November 6, 2018
In Leng v The Queen,89 the taxpayer, who was an assistant professor specializing in cancer
research, purchased, at any one time, hundreds of shares in various public corporations. He often
sold the purchased batch later on during the same day. During the four tax years at issue, the
taxpayer had approximately 17 buy-sell transactions. The taxpayer professed that, due to his
flexible work schedule, he had time to take courses in share trading and study the market. Yet the
court concluded that the taxpayer was not an insider with specialized knowledge of the shares
that he acquired, and it held that the proceeds of disposition were on account of capital. In
particular, the court noted that the taxpayer “purchased shares - as did thousands of Canadians -
to make a profit but he was not carrying on a business in pursuit of that profit. The fact that a
person buys and sells shares at a short interval is not, by itself, conclusive that the person is a
trader or that the venture was in the nature of trade.”90
In Pollock v the Queen,91 the taxpayers claimed that the losses they incurred from selling high-
risk tech shares were fully deductible business losses. The court decided that the losses were in
fact capital losses. The court’s decision boiled down to four reasons.92 First, in a prior tax year,
when the taxpayers realized gains from similar share transactions, they reported those gains as
capital gains. Second, the taxpayers traded infrequently: during the year at issue, the taxpayers
sold seven types of stock on only three separate occasions. Third, the taxpayers held all their
shares for over a year, with most shares being held for three to five years. Finally, the taxpayers
retained certain shares despite a dramatic rise in market value lasting over a year; instead, they
sold the shares only after the share price plummeted. The taxpayers’ failure to take advantage of
an opportunity for a quick flip figured heavily in the court’s decision.
Like the taxpayers in Pollock, the taxpayer in Azrak v the Queen93reported his losses from selling
public shares were business losses, yet he previously reported his gains from similar transactions
as capital gains. The court held that the taxpayer’s transactions failed to comprise a business.
The court primarily noted the taxpayer’s inactivity during the two years in issue: In 2003, the
taxpayer made no purchases and one sale of shares that had been held for about two years. In
2004, the taxpayer made 14 purchases and 12 sales.
And finally, in Kriplani v The Queen,94 the taxpayer’s past reporting again made the difference in
the court’s decision. From 1999 through 2004, the taxpayer’s trades per year ranged from 0 to
34. During those years, she consistently reported the gains or losses on account of capital. In
89
Leng v The Queen, 2007 TCC 59 (CanLII); [2007] 2 CTC 2456.
90
Ibid, at para 12.
91
Pollock v The Queen, 2008 TCC 115.
92
Ibid, at para 16.
93
Arak v The Queen, 2008 TCC 217.
94
Kriplani v The Queen, 2011 TCC 542.
To: Mr. XXX 33

November 6, 2018
2005, the taxpayer made 19 trades but decided to claim her $5,000 loss on account of business
income. The court noted that the taxpayer’s “level of activity [was] modest in terms of
transactions,”95 but it also pointed out that “the sales involved stocks held for relatively short
periods of time, a few days to four months.”96 The court ultimately decided that the taxpayer’s
past reporting of similar share transactions on capital account “clearly tip[ed] the overall picture
to one where one must conclude that the transactions were on capital account.”97
General Principles on Discerning an Adventure in the Nature of Trade
In essence, no one factor emerges as singularly important for determining whether a sale was an
adventure in the nature of trade. Typically, several factors in aggregate will determine the issue.
As a result, the jurisprudence often appears inconsistent.
Yet five general principles emerge:98
1. The boundary between business income and capital gains cannot easily be drawn and, as a
consequence, consideration of various factors, including the taxpayer’s intent at the time of
acquiring the property at issue, becomes necessary for a proper determination.
2. For the transaction to constitute an adventure in the nature of trade, the possibility of resale,
as an operating motivation for the purchase, must have been in the mind of the taxpayer. In
order to make that determination, a court must draw inferences from all of the
circumstances. In other words, the taxpayer’s whole course of conduct has to be assessed.
3. A secondary intention must have existed at the time of acquiring the property, and it must
have been an operating motivation in the acquisition of the property.
4. The fact that the taxpayer contemplated the possibility of resale of his or her property is not,
in itself, sufficient to conclude in the existence of an adventure in the nature of trade.
5. The oral evidence of the taxpayer with respect to his or her intention is not conclusive and
has to be tested in the light of all the surrounding circumstances.
XXX Did Not Engage in an Adventure in the Nature of Trade When Transacting With PPT,
VERI, and LTC
95
Ibid, at para 16.
96
Ibid, at para 23.
97
Ibid, at paras 30-31.
98
Canada Safeway Limited v Canada, 2008 FCA 24, at para 61.
To: Mr. XXX 34

November 6, 2018
XXX’s transactions involving PPT, VERI, and LTC did not constitute an adventure in the nature
of trade.
On one hand, these transactions compare favorably with those in the cases finding against an
adventure in the nature of trade.
Like the taxpayer in Wood v MNR,99 XXX used his personal savings—not borrowed funds—to
purchase PPT, VERI, and LTC.
In Leng v The Queen,100 despite taking courses on trading, the taxpayer did not have insider
knowledge or specialized knowledge of the shares that he acquired and sold, and the court
concluded that his transactions did not constitute an adventure in the nature of trade. Likewise,
not only did XXX rely on publicly available information when deciding whether to purchase or
sell PPT, VERI, and LTC, but also XXX never attended any formal courses on trading.
In Pollock v the Queen,101 the taxpayers retained their shares despite a dramatic rise in market
value and sold their shares only after the market tanked. The taxpayers’ failure to take advantage
of an opportunity for a quick flip led the court to conclude that they had not engaged in an
adventure in the nature of trade. Like the taxpayers in Pollock, XXX could have fully liquidated
his holdings in PPT, VERI, and LTC when the crypto-currency market peaked in December of
2017. Instead, he sold just enough to rebalance his crypto-currency portfolio. He retained about
half of all the VERI and LTC units that he acquired in 2017. These units lost significant value in
2018. Although XXX only retained 9,306.28 of the total 119,093.43 PPT units he acquired in
2017, the market value of PPT increased by 3270% from XXX’s first acquisition to the end of
the year. And his initial investment in PPT far outweighed his initial investments in either VERI
or LTC: He initially acquired 116,727.2727 PPT units for a total of $45,523.64; he initially
acquired 570 VERI units for a total of $6,315.60; and he initially acquired 30.02 LTC units for a
total of $547.56. As a result, he needed to sell significantly more units of PPT than of either
VERI or LTC to rebalance his crypto-currency portfolio. In addition, XXX often repurchased
these crypto-currencies at a higher price. For instance, on July 9, 2017, XXX sold 40.733 VERI
units for 30.241 ETH units and effectively received $237.11 per VERI unit. Two weeks later, he
bought 61.732 VERI units for 61.298 ETH units and effectively spent $279.25 per VERI unit.
Also, on November 14, 2017, he sold LTC units for Bitcoin and effectively received $76.56 per
LTC unit. A few weeks later, he sold LTC units for cash and spent $285.00 per unit. Likewise,
he often sold these crypto-currencies at a loss. For example, on December 21, 2017, he bought
80.61 LTC units for $31,999.95 and thus spent $396.97 per LTC unit. The next day, he sold
99
Wood v MNR, [1969] CTC 57, 69 DTC 5073
100
101
To: Mr. XXX 35

November 6, 2018
299.65 LTC units for $71,091.25 and received only $237.25 per LTC unit. XXX’s behavior is
not indicative of someone looking for a quick flip. Instead, it suggests that he sold sufficient
holdings to rebalance his crypto-currency portfolio and protect against the possibility that the
market would plummet after a dramatic rise. He then reinvested when he saw signs of market
stability.
On the other hand, one can distinguish XXX’s PPT, VERI, and LTC transactions from those in
the cases finding in favor of an adventure in the nature of trade.
In Dube v R,102 the court held that a building inspector’s sale of buildings were an adventure in
the nature of trade. The taxpayer’s profession and expertise in assessing the value of buildings
weighed heavily in the court’s decision. Unlike the taxpayer in Dube, XXX’s education and
employment do not provide him with any unique insight on valuing crypto-currency or
projecting the future value of crypto-currency.
Moreover, XXX expended far less time researching and trading than did the taxpayers in Zsebok
v the Queen103 and Mittal v The Queen.104 In Zsebok, the taxpayer researched and traded for long
hours each day while at work; XXX spent at most about an hour daily on all trade-related
activities. In Mittal, the taxpayer devoted 25 hours per week to trading and related activities;
XXX devoted no more than 7 hours per week.
The taxpayer in Zsebok borrowed heavily and traded frantically with whatever cash he could
acquire. XXX, in contrast, never borrowed to invest in crypto-currency and used his own
savings.
Further, in 2017, XXX had 77 total transactions involving PPT, VERI, and LTC combined (40
for PPT, 14 for VERI, and 23 for LTC), far less than both the taxpayer in Mittal, who performed
160 trades in a year, and the taxpayer in Wong v The Queen,105 who executed over 120 trades in
each of the five years at issue. In addition, XXX’s transaction activity for these three crypto-
currencies contrasts sharply with his transaction activity for Bitcoin and ETH. In 2017, XXX
carried out 238 transactions involving Bitcoin and 374 transactions involving ETH. (The ETH
figure excludes the superfluous transactions involving PPT and VERI.)
102
Dube v R, [2007] 2 CTC 2437, 2007 DTC 468 (TCC).
103
104
105
To: Mr. XXX 36

November 6, 2018
Finally, unlike the taxpayers in Canada Safeway Limited v Canada106 and Regal Heights v
MNR,107 XXX’s dispositions of PPT, VERI, and LTC do not evidence a secondary intent to trade.
First, the secondary intention must have caused the taxpayer to acquire the property. 108 XXX’s
doubts about conventional markets initially drew him to crypto-currency in general, and he acquired
PPT and VERI in particular because he viewed them as a potential future source of investment
income. Further, XXX could have fully liquidated his holdings in PPT, VERI, and LTC when the
crypto-currency market peaked in December of 2017. Instead, XXX, in contrast to the taxpayers
in Canada Safeway and Regal Heights, retained some holdings in these assets, and he even
repurchased some units after seeing some stability in the market price. He sold just enough PPT,
VERI, and LTC to rebalance his crypto-currency portfolio when the prices of these crypto-
currencies skyrocketed. Yet by the year’s end, he still retained about half of all the VERI and
LTC units that he acquired in 2017. Although he retained a smaller proportion of his PPT
holdings, his initial investment in PPT far outweighed his initial investments in either VERI or
LTC. So, he needed to sell more PPT units to rebalance his portfolio when the price soared.
Moreover, (as described above) XXX often sold PPT, VERI, and LTC at a loss or repurchased
them at a higher price. Overall, this activity suggests that he sold sufficient holdings to rebalance
his crypto-currency portfolio and protect against the possibility that the market would plummet
after a dramatic rise. He then reinvested when he saw signs of market stability. He retained some
holdings in PPT, VERI, and LTC—and even reinvested later on—because he plausibly viewed
them as a long-term investment from the beginning. As such, his profits from disposing these
units were likely incidental and thus inconsistent with a “dual intention”109 to trade.
Granted, XXX’s holding durations for PPT, VERI, and LTC were occasionally very short. In
June 2017, for example, he bought and sold ETH within about two weeks. And on December
21, 2017, he bought LTC only to sell them the following day.
But he did so not because he saw an opportunity for a quick flip—in fact, he often sold at a loss.
For example, he purchased LTC on December 21 st at $396.97 per unit and sold the following day
at $237.25 per unit. And XXX, unlike the taxpayers in Wong and Zsebok, rarely sold units in
VERI, LTC, or PPT on the same day of purchase. He only twice purchased and sold LTC on the
same day: once on December 14, 2017 and again on December 22, 2017. In both cases, he
purchased LTC at a higher unit price than that at which he sold: on December 14 th, he first
bought LTC at $366.87 per unit and then sold it at $344.83 per unit; on December 22 nd, he first
sold LTC at $237.25 per unit and then bought it at $241.10 per unit. Moreover, he sold LTC on
106
107
Regal Heights v MNR, [1960] CTC 384, 60 DTC 1270 (SCC).
108
Riecher v R, [1975] CTC 659, 76 DTC 6001 (FCA); Hiwako Investments v R, [1978] CTC 378, 78 DTC 6281
(FCA).
109
Canada Safeway Limited v Canada, 2008 FCA 24, at para 71.
To: Mr. XXX 37

November 6, 2018
December 14th only in response to a co-worker’s request. Specifically, XXX’s co-worker

approached him, expressed a desire to invest in LTC, and explained that he preferred to purchase
the LTC from a trusted source. In response to this request, on December 14, 2017, XXX sold
17.4 LTC units to his co-worker for $6,000.00. In addition, a short holding duration by itself
does not lead to the conclusion that a person engaged in an adventure in the nature of trade. 110
Further, cases like MNR v Lawee111 and Montfort Lakes Estates v R,112 where courts held that
taxpayers had not engaged in an adventure in the nature of trade on the basis of lengthy holding
durations (9 years and 18 years, respectively), likely have no bearing in XXX’s case. Both
Lawee and Montfort Lakes involved undeveloped land, which gives rise to a presumption of
trading because of its inability to yield income for the owner. 113 As a result, it is unsurprising that
these cases seemed to require longer holding durations for the courts to view the taxpayers as
investing rather than trading. XXX, in contrast, perceived that his holdings in PPT and VERI
would eventually provide him with a source of investment income.
Still, MNR v Taylor114 and Freisen v Canada115 suggest that transactions involving non-income-
bearing property might imply an adventure in the nature of trade. And none of XXX’s crypto-
currency holdings yielded income in 2017. Moreover, unlike shares, crypto-currency does not
“represent an interest in a corporation which is itself created for the purpose of doing
business.”116
Yet one can rebut the trading presumption on transactions involving non-income-bearing
property. For example, some commodity purchasers see certain commodities (like gold) as a
means of providing security against inflation, the volatility of paper currency, or the instability of
governments.117 These purchasers therefore buy, say, gold as a long-term store of value, and they
intend to hold the commodity for as long as possible. Although no reported cases have held that
the profit from a commodities transaction was on account of capital, 118 courts have held that
profits from the sale of undeveloped land were on capital account. In both MNR v Lawee119 and
Montfort Lakes Estates v R,120 the Federal Court found that the respective taxpayers had acquired
110
Leng v The Queen, 2007 TCC 59, at para 12.
111
112
113
Peter W. Hogg, Joanne E. Magee, & Jinyan Li, Principles of Canadian Income Tax Law, 8th ed (Carswell:
Toronto, 2013), at 361.
114
MNR v Taylor, [1956] CTC 189, 56 DTC 1125 (Ex. Crt.)
115
Friesen v Canada, [1995] 3 SCR 103.
116
Irrigation Industries Ltd v MNR, [1962] SCR 346, 1962 CanLII 55 (SCC), at 350-352.
117
Peter W. Hogg, Joanne E. Magee, & Jinyan Li, Principles of Canadian Income Tax Law, 8th ed (Carswell:
Toronto, 2013), at 370.
118
Ibid.
119
120
To: Mr. XXX 38

November 6, 2018
land to provide security against inflation over a long term without any intention for a quick
resale. As a result, in both cases, the court held that the profit was a capital gain. Presumably, the
reasoning in these cases would apply to taxpayers who purchased commodities—and
commodity-like articles, such as crypto-currency.
So, like the taxpayers in MNR v Lawee121 and Montfort Lakes Estates v R,122 XXX arguably
acquired the crypto-currency to protect against inflation over a long term without any intention
for a quick resale. He entered the crypto-currency market with the intention of establishing an
investment portfolio. And he opted for a crypto-currency portfolio instead of traditional
securities because he had already established a traditional portfolio, and he perceived cryoto-
currency as a means of diversifying his savings. In addition, XXX believed that worldwide
borrowing trends had rendered conventional currencies overvalued. He also viewed crypto-
currency as the future of money. XXX is thus in a similar position to a commodity purchaser
who sees the commodity as a long-term store of value.
Further, the non-income-bearing property in Taylor and Freisen were cumbersome to maintain
and seemingly suitable for no other purpose but resale. Taylor concerned the purchase and sale
of 1,500 tons of lead, and Freisen involved an undeveloped piece of land that was “unsuitable as
an income producing investment or for the personal enjoyment of [the taxpayer].” 123 Unlike
undeveloped land or 1,500 tons of lead, a crypto-currency can easily be held in an account akin to a
corporate share. In addition, unlike the taxpayers in Taylor and Freisen, XXX believed that his
holdings in PPT and VERI would offer a future source of investment income, and he perceived that
crypto-currency could eventually serve as the primary medium of exchange.
In summary, jurisprudence supports the proposition that XXX’s transactions involving PPT,
VERI, and LTC did not constitute an adventure in the nature of trade.
XXX Engaged in an Adventure in the Nature of Trade When Transacting With Bitcoin and ETH
XXX’s transactions involving Bitcoin and ETH constituted an adventure in the nature of trade.
On one hand, one can distinguish XXX’s Bitcoin and ETH transactions from those in the cases
finding against an adventure in the nature of trade.
121
122
123
Friesen v Canada, [1995] 3 SCR 103, at para 18.
To: Mr. XXX 39

November 6, 2018
Although, like the taxpayer in Wood v MNR,124 XXX used his personal savings, and, like the
taxpayer in Leng v The Queen,125 he relied on publicly available information, the sheer quantity
of his Bitcoin and ETH transactions far surpasses that at issue in either of these two cases. In
Leng, the taxpayer had about 17 buy-sell transactions in each of four tax years. In Wood, the
taxpayer purchased 13 mortgages, and realized a gain when the mortgages matured. In 2017,
XXX carried out 238 transactions involving Bitcoin and 374 transactions involving ETH. (The
ETH figure excludes the superfluous transactions involving PPT and VERI.) The frequency of
XXX’s Bitcoin and ETH transactions also distinguishes them from the transactions in Pollock v
the Queen,126 where, during the year at issue, the taxpayers sold seven types of stock on only
three separate occasions.
The Pollock taxpayers also retained their shares despite a dramatic rise in market value and sold
their shares only after the market tanked. The taxpayers’ failure to take advantage of an
opportunity for a quick flip led the court to conclude that they had not engaged in an adventure in
the nature of trade. In contrast, XXX seemingly timed the market when selling Bitcoin and ETH.
His cash sales of Bitcoin and ETH peaked when the crypto-currency market exploded in mid-
December 2017. From December 10th to the end of 2017, XXX sold 19.84 Bitcoin for
$361,451.21. XXX only sold Bitcoin for cash in three other months: in September, he sold
11.767 Bitcoin for $53,959.58; in June, he sold 2.47 Bitcoin for $8,364.79; and, in May, he sold
0.77 Bitcoin for $245.51. Similarly, from December 12 th to the end of 2017, XXX sold 334 ETH
units for $287,949.62. He only sold ETH for cash in three other months: in September, he sold
206.56 ETH units for $68,073.35; in July, he sold 182 ETH units for $49,505.52; and, in June, he
sold 60.30 ETH units for $29,643.05.
Indeed, XXX’s transactions involving Bitcoin and ETH also differ from his transactions
involving PPT, VERI, and LTC. First, in 2017, XXX had 77 total transactions involving PPT,
VERI, and LTC combined (40 for PPT, 14 for VERI, and 23 for LTC), far less than his 238
transactions involving Bitcoin and 374 transactions involving ETH. (The ETH figure excludes
the superfluous transactions involving PPT and VERI.) In addition, he sold just enough PPT,
VERI, and LTC to rebalance his crypto-currency portfolio when the prices of these crypto-
currencies skyrocketed. By the year’s end, he still retained about half of all the VERI and LTC
units that he acquired in 2017. Although he retained only about 8% of his PPT holdings, his
initial investment in PPT far outweighed his initial investments in either VERI or LTC. So, he
needed to sell more PPT units to rebalance his portfolio when the price soared. But by the he end
of 2017, he retained only about 2% of the 4,672.97 ETH units and about 4% of the 384.463
Bitcoin that he had acquired in the year.
124
Wood v MNR, [1969] CTC 57, 69 DTC 5073
125
126
To: Mr. XXX 40

November 6, 2018
On the other hand, XXX’s Bitcoin and ETH transactions compare favorably with those in the
cases finding in favor of an adventure in the nature of trade.
In particular, XXX executed more Bitcoin and ETH transactions than did taxpayers in cases
where transaction frequency played heavily in the decision. His 238 Bitcoin transactions and
374 ETH transactions each exceed those of the taxpayers in Mittal127 (160 trades in a year),
Wong128 (about 120 trades per year), and Zsebok129 (105 trades in a year).
In summary, jurisprudence supports the proposition that XXX’s transactions involving Bitcoin
and ETH constituted an adventure in the nature of trade.
XXX Engaged in an Adventure in the Nature of Trade When Transacting With SALT
XXX’s transactions involving SALT constituted an adventure in the nature of trade. Although he
only carried out 11 SALT transactions in 2017, even a single, isolated transaction may suffice for
and adventure in the nature of trade. 130 Also, XXX seemingly took advantage of a mistake by the
SALT platform and effectively sold more units than he in fact received. Moreover, his SALT
transactions reveal a pattern of buying low and selling high, indicating that XXX was not
rebalancing his portfolio but purchasing with the intent to resell.
On August 15, 2017, XXX received 17,334 SALT units from the SALT platform’s initial coin
offering. Yet, from August 16, 2017 to October 14, 2017, he sold a total of 31,073.224 SALT
units without any intervening SALT purchases.
XXX explained that, on October 13, 2017, the SALT platform may have erroneously duplicated
his withdrawals and forwarded additional SALT units to his crypto-currency wallet without his
knowledge or consent. On October 13, 2017, there were three withdrawals from XXX’s SALT-
platform account: two of 3,200 SALT units each and one of 7,000 SALT units. Each transaction
was time-stamped at 10:09 p.m., and no transaction fee was applied to any of these transactions.
Moreover, as of September 21, 2018, XXX’s SALT-platform account lists his SALT balance as
overdrawn by 13,345.24 units. It therefore appears that the three SALT withdrawals on October
13, 2017 may not have been of XXX’s doing.
127
128
129
130
E.g., see: Canada Safeway Limited v Canada, 2008 FCA 24; Regal Heights v MNR, [1960] CTC 384, 60 DTC 1270
(SCC).
To: Mr. XXX 41

November 6, 2018
Nonetheless, XXX took advantage of this windfall. The day after the SALT platform erroneously
forwarded 13,400 SALT units to his crypto-currency wallet, XXX sold 15,384.701 SALT units
from his wallet for 595.881 ETH units and effectively received $16.96 per SALT unit—his
highest receipt per SALT unit in 2017. In other words, unlike the taxpayer in Pollock,131 XXX
promptly seized the opportunity for a quick flip.
And while “an opportunity calling for ready money” might “preclude a finding that the plan of
dealing in the property was what caused the original purchase,”132 XXX’s SALT transaction
history shows pattern consistent with an intention to trade. For instance, in December 2017, he
executed two profitable buy-sell cycles within a few days. On December 2nd and 4th, he
purchased SALT with Bitcoin and effectively spent an average of $7.38 per SALT unit. On
December 9, he sold SALT for Bitcoin and effectively received $10.97 per SALT unit. He
repeated the pattern again later in the month. On December 13th, he purchased SALT with
Bitcoin and effectively spent $9.89 per SALT unit. On December 21st, he sold SALT for Bitcoin
and effectively received $12.04 per SALT unit.
In addition, unlike his transactions involving PPT, VERI, and LTC, XXX’s SALT transactions
prove inconsistent with efforts to rebalance a portfolio in the face of sharp market fluctuations.
For instance, XXX began selling PPT in early July 2017 when the market price climbed to over
$5.00 per unit from the prior month’s $0.39 per unit. Likewise, XXX shed his LTC holdings
when LTC’s price increased from under $20.00 per unit to around $35.00 per unit, and he sold
VERI when VERI’s price increased from about $11.00 per unit to about $500.00 per unit. The
unit price of SALT, however, remained consistently around $4.50 from mid-August to early
October. Yet XXX executed three SALT sales during this period. Moreover, rebalancing would
not make sense of the SALT purchase-sale pattern in December.
A Trader: One with Special Knowledge of a Particular Market
The criteria for determining whether an individual engaged in an adventure in the nature of trade
are also relevant for determining whether an individual is a trader. 133 But a trader, in addition to
satisfying those criteria, must possess “a particular or special knowledge of the market in which
131
132
Happy Valley Farms Ltd v Her Majesty the Queen, 86 DTC 6421 (FCTD), at para 14.
133
Zsebok v the Queen, 2012 TCC 99, at paras 6-7.
To: Mr. XXX 42

November 6, 2018
he trades.”134 In fact, it is this latter characteristic that accounts for the difference between a
trader and one engaged in an adventure in the nature of trade.135
For example, the court in Zsebok v the Queen136 (discussed above) held that the taxpayer engaged
in an adventure in the nature of trade yet was not a trader. The taxpayer performed 93 share
trades in his margin account and 12 trades in his RSP account during the four tax years at issue.
His average duration for holding a share was about 60 days, but many shares were held for only
a few days or hours. While these facts led the court to conclude that the taxpayer had engaged in
an adventure in the nature of trade, the court also held that the taxpayer “lacked the special
knowledge necessary to make him a ‘trader.’” 137 While the taxpayer was familiar with various
internet tools that could be used to track the market, these were available to the general public by
paying a subscription fee. In addition, the court reasoned that neither the taxpayer’s education in
economics and accounting nor his occupation, which saw him handling his employer company’s
acquisition of shares in a corporate take over, provided the taxpayer with “specialized knowledge
of the shares traded.”138
The following two sections examine (i) cases finding that a taxpayer was a trader and (ii) cases
finding that a taxpayer did not engage in trading. Afterwards, the memo draws a conclusion from
comparing these cases to XXX’s facts.
Cases Finding that Taxpayer was a Trader
In Scott v MNR,139 the Supreme Court of Canada held that a real-estate lawyer was a trader and
thus earned business income because, over a period of eight years, he purchased 149 mortgages
at a discount and realized a profit by holding these obligations until maturity.
In Hawa v the Queen,140 a taxpayer, during the year at issue, carried out 151 purchase
transactions involving shares in 16 companies. The shares from each purchase were held for
short periods of time. The court concluded that “the evidence [was] overwhelming that [the
134
Kane v Canada, [1995] 1 CTC 1 (FCTD), at para 23; quoted with approval in Zsebok v the Queen, 2012 TCC 99, at
para 7.
135
Zsebok v the Queen, 2012 TCC 99, at para 7.
136
137
Ibid, at para 11.
138
Ibid, at paras 8, 10, and 11.
139
Scott v MNR, [1963] CTC 176, 63 DTC 1121 (SCC).
140
Hawa v the Queen, 2006 TCC 612 (Bowman, C.J.).
To: Mr. XXX 43

November 6, 2018
taxpayer] was trading in shares.”141 In addition, the court clarified that the taxpayer’s commercial
activity went beyond an adventure in the nature of trade; the taxpayer was a trader.142
Cases Finding that Taxpayer Did Not Engage in Trading
Courts typically conclude that a taxpayer is not a trader in cases where the taxpayer lacks
specialized knowledge in the particular market. In Zsebok v the Queen143 (discussed above), the
court held that the taxpayer not a trader because he lacked specialized knowledge of the shares
traded. The taxpayer performed 93 share trades in his margin account and 12 trades in his RSP
account during the four tax years at issue. His average duration for holding a share was about 60
days, but many shares were held for only a few days or hours . The taxpayer’s full-time
employment required him to keep abreast of developments in the international market and
allowed him to trade during work hours. As a result, the taxpayer sat in front of his office
computer for long hours daily and monitored his personal-investment data. Yet the court also
held that the taxpayer “lacked the special knowledge necessary to make him a ‘trader.’” 144 While
the taxpayer was familiar with various internet tools that could be used to track the market, these
were available to the general public by paying a subscription fee. In addition, the court reasoned
that neither the taxpayer’s education in economics and accounting nor his occupation, which saw
him handling his employer company’s acquisition of shares in a corporate take over, provided
the taxpayer with “specialized knowledge of the shares traded.”145
The taxpayer’s lack of specialized knowledge also figured into the court’s decision in Leng v The
Queen.146 In this case, the taxpayer, who was an assistant professor specializing in cancer
research, purchased, at any one time, hundreds of shares in various public corporations. He often
sold the purchased batch later on during the same day. During the four tax years at issue, the
taxpayer had approximately 17 buy-sell transactions. The taxpayer professed that, due to his
flexible work schedule, he had time to take courses in share trading and study the market. Yet the
court concluded that the taxpayer was not an insider with specialized knowledge of the shares
that he acquired, and it held that the proceeds of disposition were on account of capital. In
particular, the court noted that the taxpayer “purchased shares - as did thousands of Canadians -
to make a profit but he was not carrying on a business in pursuit of that profit. The fact that a
141
Ibid, at para 8.
142
Ibid, at para 11 (“I think that a concerted commercial activity of buying and selling shares over an extended
period of time can more appropriately be described as the carrying of a business in the ordinary sense of that word
without resort to the concept of ‘adventure in the nature of trade’”) .
143
144
Ibid, at para 11.
145
Ibid, at paras 8, 10, and 11.
146
To: Mr. XXX 44

November 6, 2018
person buys and sells shares at a short interval is not, by itself, conclusive that the person is a
trader or that the venture was in the nature of trade.”147
Courts may also conclude that a taxpayer is not a trader where the taxpayer fails to cut losses or
retains shares despite the opportunity for a profitable sale. In Pollock v the Queen,148 the
taxpayers claimed that the losses they incurred from selling high-risk tech shares were fully
deductible business losses. The court decided that the losses were in fact capital losses. The
court’s decision boiled down to four reasons.149 First, in a prior tax year, when the taxpayers
realized gains from similar share transactions, they reported those gains as capital gains. Second,
the taxpayers traded infrequently: during the year at issue, the taxpayers sold seven types of
stock on only three separate occasions. Third, the taxpayers held all their shares for over a year,
with most shares being held for three to five years. Finally, the taxpayers retained certain shares
despite a dramatic rise in market value lasting over a year; instead, they sold the shares only after
the share price plummeted. The taxpayer’s failure to take advantage of an opportunity for a quick
flip figured heavily in the court’s decision.
Again, in Turner v The Queen,150 a taxpayer’s failure to dispose of shares that plummeted in
value resulted in the court’s finding that the taxpayer’s losses were capital losses. In Turner, the
taxpayer, an electrical engineer, began investing heavily in shares of a single company. The
share price nosedived from $25 per share to $0.5 per share. Yet the taxpayer not only retained his
shares he purchased more in hopes that the share price would turn around. The company went
bankrupt, and the taxpayer lost everything. The court concluded that the taxpayer was not
carrying on business. Its reasoning focused on the taxpayer’s failure to sell and diversify:
The Appellant dealt only in one security, Central. If he were in the business of
trading in securities, one would expect a much more diversified portfolio. He held on
to the shares of Central when they were continually decreasing in value. If he was a
trader, he would have sold the shares and cut his losses so that he could recoup
whatever he could and invest in other securities. That is how a trader makes money
or minimizes his losses. He buys and sells. When a taxpayer enters into an isolated
transaction or only a few transactions, he is not a trader.151
147
Ibid, at para 12.
148
149
Ibid, at para 16.
150
Turner v The Queen, 2016 TCC 77.
151
Ibid, at para 22.
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November 6, 2018
A taxpayer’s prior reporting of transactions on tax returns may also influence the court’s
decision. Like the taxpayers in Pollock, the taxpayer in Azrak v the Queen152reported his losses
from selling public shares were business losses, yet he previously reported his gains from similar
transactions as capital gains. The court held that the taxpayer’s transactions failed to comprise a
business. The court primarily noted the taxpayer’s inactivity during the two years in issue: In
2003, the taxpayer made no purchases and one sale of shares that had been held for about two
years. In 2004, the taxpayer made 14 purchases and 12 sales.
Again, in Kriplani v The Queen,153 the taxpayer’s past reporting made the difference in the
court’s decision. From 1999 through 2004, the taxpayer’s trades per year ranged from 0 to 34.
During those years, she consistently reported the gains or losses on account of capital. In 2005,
the taxpayer made 19 trades but decided to claim her $5,000 loss on account of business income.
The court noted that the taxpayer’s “level of activity [was] modest in terms of transactions,”154
but it also pointed out that “the sales involved stocks held for relatively short periods of time, a
few days to four months.”155 The court ultimately decided that the taxpayer’s past reporting of
similar share transactions on capital account “clearly tip[ed] the overall picture to one where one
must conclude that the transactions were on capital account.”156
XXX’s Transactions Involving PPT, VERI, LTC, and SALT Do Not Render Him a Trader
The jurisprudence supports the view that XXX’s transactions involving PPT, VERI, LTC, and
SALT did not render him a trader.
Primarily, XXX’s lack of specialized knowledge suggests that he is not a trader. Like the
taxpayers in Zsebok v the Queen157 and Leng v The Queen,158 XXX obtained no specialized
knowledge of the crypto-currency that he purchased and sold, and he relied on information that
was publicly available when making purchase or sale decisions. For the same reason, XXX is
unlike the taxpayer in Scott v MNR,159 who was a real-estate lawyer dealing in real-estate and
mortgage agreements and thus presumably had specialized knowledge of the sort contemplated
in Zsebok and Leng.
152
Arak v The Queen, 2008 TCC 217.
153
Kriplani v The Queen, 2011 TCC 542.
154
Ibid, at para 16.
155
Ibid, at para 23.
156
Ibid, at paras 30-31.
157
158
159
To: Mr. XXX 46

November 6, 2018
Additionally, one can distinguish XXX’s PPT, VERI, LTC, and SALT transactions from those in
the cases finding that the taxpayer engaged in trading. XXX’s transactions with PPT, VERI,
LTC, and SALT exhibited far less frequency than those in cases finding that the taxpayer
engaged in trading. For instance, the taxpayer in Hawa v the Queen160 carried out 151 purchases
involving 16 different company shares, which were sold shortly after. And in Scott v MNR,161
the Supreme Court of Canada held that a real-estate lawyer was a trader and thus earned business
income because, over a period of eight years, he purchased 149 agreements and mortgages at a
discount and realized a profit by holding these obligations until maturity. XXX had 88 total
transactions involving PPT, VERI, LTC, and SALT combined.
As a result, XXX’s transactions involving PPT, VERI, LTC, and SALT failed to comprise a
trading business.
XXX’s Transactions Involving Bitcoin and ETH Might Render Him a Trader
Although XXX lacks the specialized market knowledge that a trader seemingly requires, the
frequency of his transactions involving Bitcoin and ETH might render those transactions a
trading business. XXX executed more Bitcoin and ETH transactions than did taxpayers in
trading cases where transaction frequency played heavily in the decision. For instance, in Scott v
MNR,162 the Supreme Court of Canada held that a real-estate lawyer was a trader and thus earned
business income because, over a period of eight years, he purchased 149 agreements and
mortgages at a discount and realized a profit by holding these obligations until maturity. And in
Hawa v the Queen,163 the held that the taxpayer was a trader because, during the year at issue, he
carried out 151 trades involving shares in 16 companies. XXX executed 238 Bitcoin
transactions, and his 374 ETH transactions alone more than double those at issue in each Scott
and Hawa.
In summary, XXX’s transaction frequency with Bitcoin and ETH implies a trading business.
Admittedly, it remains unclear whether frequent transactions suffice to render one a trader in the
absence of specialized knowledge. That said, the court in Hawa focused its analysis on
transaction and did not even consider the taxpayer’s expertise or lack thereof. Since XXX’s
Bitcoin and ETH transactions greatly exceeded those at issue in Hawa, they plausibly comprise a
trading business.
160
161
162
163
To: Mr. XXX 47

November 6, 2018
XXX May Treat Dispositions of Similar Types of Property On Account of Capital For One Set
of Transactions and Income For Another Set Of Transactions
XXX’s transactions involving PPT, VERI, and LTC differs markedly from his transactions
involving Bitcoin, ETH, and SALT.
In 2017, XXX had 77 total transactions involving PPT, VERI, and LTC combined (40 for PPT,
14 for VERI, and 23 for LTC), far less than his 238 transactions involving Bitcoin and 374
transactions involving ETH. In addition, he sold just enough PPT, VERI, and LTC to rebalance
his crypto-currency portfolio when the prices of these crypto-currencies skyrocketed. By the
year’s end, he still retained about half of all the VERI and LTC units that he acquired in 2017.
Although he retained only about 8% of his PPT holdings, his initial investment in PPT far
outweighed his initial investments in either VERI or LTC. So, he needed to sell more PPT units
to rebalance his portfolio when the price soared. But by the he end of 2017, he retained only
about 2% of the 4,672.97 ETH units and about 4% of the 384.463 Bitcoin that he had acquired
that year.
Also, XXX seemingly timed the market when selling Bitcoin, ETH, and SALT. His cash sales of
Bitcoin and ETH peaked when the crypto-currency market exploded in mid-December 2017.
From December 10th to the end of 2017, XXX sold 19.84 Bitcoin for $361,451.21. XXX only
sold Bitcoin for cash in three other months: in September, he sold 11.767 Bitcoin for $53,959.58;
in June, he sold 2.47 Bitcoin for $8,364.79; and, in May, he sold 0.77 Bitcoin for $245.51.
Similarly, from December 12th to the end of 2017, XXX sold 334 ETH units for $287,949.62. He
only sold ETH for cash in three other months: in September, he sold 206.56 ETH units for
$68,073.35; in July, he sold 182 ETH units for $49,505.52; and, in June, he sold 60.30 ETH units
for $29,643.05. XXX’s December SALT transactions also exhibit a pattern consistent with an
intention to trade. For instance, in December 2017, he executed two profitable buy-sell cycles
within a few days. On December 2nd and 4th, he purchased SALT with Bitcoin and effectively
spent an average of $7.38 per SALT unit. On December 9, he sold SALT for Bitcoin and
effectively received $10.97 per SALT unit. He repeated the pattern again later in the month. On
December 13th, he purchased SALT with Bitcoin and effectively spent $9.89 per SALT unit. On
December 21st, he sold SALT for Bitcoin and effectively received $12.04 per SALT unit.
Finally, unlike his transactions involving PPT, VERI, and LTC, XXX’s SALT transactions prove
inconsistent with efforts to rebalance a portfolio in the face of sharp market fluctuations. For
instance, XXX began selling PPT in early July 2017 when the market price climbed to over
$5.00 per unit from the prior month’s $0.39 per unit. Similarly, XXX shed his LTC holdings
To: Mr. XXX 48

November 6, 2018
when LTC’s price increased from under $20.00 per unit to around $35.00 per unit, and he sold
VERI when VERI’s price increased from about $11.00 per unit to about $500.00 per unit. The
unit price of SALT, however, remained consistently around $4.50 from mid-August to early
October. Yet XXX executed three SALT sales during this period. Further, rebalancing would not
make sense of the SALT purchase-sale pattern in December. And while he retained some
holdings in PPT, VERI, and LTC by the end of 2017, XXX managed to sell more SALT units
than he in fact owned due to a seeming error in the SALT platform.
The difference in trading activity evidences XXX’s different intentions for his PPT, VERI, and
LTC holdings, one the one hand, and his Bitcoin, ETH, and SALT holdings, on the other. In this
case, jurisprudence supports adopting a different filing position with respect to dispositions
involving similar property—i.e., reporting some dispositions on account of capital and others on
account of income.164
A taxpayer cannot, however, attempt to get the best of both worlds by treating gains on capital
account and losses on income account for similar transactions. For instance, in Rajchgot v
R,165 the taxpayer had a history of investing in the stock market. He had always treated his gains
and losses on account of capital. But in 1997, the taxpayer suffered large losses from a particular
investment. The taxpayer attempted to convince the Federal Court of Appeal that this particular
investment was on income account. The court rejected his claim.
Rajchgot, however, does not preclude XXX’s different treatment between his PPT, VERI, and
LTC dispositions and Bitcoin, ETH, and SALT dispositions. The taxpayer in Rajchgot only
sought to benefit from the full deductibility of business losses. In contrast, XXX would adopt
different filing positions because of observable differences in his trading activity between the
two sets of crypto-currency.
Suggestions for Further Research: Incorporation & 2017 Disposition Losses
If XXX intends to continue trading Bitcoin, ETH, and SALT in the same fashion as he did in
2017, we recommend further research into whether he might benefit from holding his trading
portfolio in a corporation. A corporation, for instance, may allow XXX to benefit from the small
business deduction,166 which will reduce the tax rate on the first $500,000 of active business
income.
164
Dawd v MNR, [1981] CTC 2999, 81 DTC 888 (TRB); Turnbull v MNR, [1984] CTC 2800, 84 DTC 1720 (TCC);
Bodine v R, [2011] 4 CTC 213.
165
Rajchgot v R, [2005] 5 CTC 1, 2005 DTC 5607 (FCA).
166
ITA, s. 125.
To: Mr. XXX 49

November 6, 2018
In addition, we recommend that XXX instruct us to perform additional research on

characterizing and using the losses from his 2017 crypto-currency dispositions. XXX had filed
his 2017 tax return before we prepared this memorandum. The CRA issued XXX’s 2017 notice
of assessment on June 26, 2018. The deadline to file a notice of objection to XXX’s 2017
assessment is April 30, 2019.167 But, if a taxpayer has yet to file a notice of objection, the CRA
may initiate collections action—e.g., issue a garnishment, initiate legal proceedings, register a
lien, etc.—for the assessed amount after 90 days of the date on the notice of assessment.168 A
notice of objection, however, shall delay the collections-commencement date for the disputed
amount until 90 days after the CRA confirms or varies the assessment.169 Due to the time
constraints involving the collections-commencement date, we focused our research on
characterizing the profits from XXX’s 2017 crypto-currency dispositions. We recommend that,
once we file a notice of objection to XXX’s 2017 notice of assessment, he instruct us to perform
additional research on characterizing and using the losses from his 2017 crypto-currency
dispositions.
CONCLUSION
PPT, VERI, and LTC Proceeds on Capital Account
The proceeds from XXX’s transactions involving PPT, VERI, and LTC are probably on capital
account.
The transactions involving PPT, VERI, and LTC were likely neither an adventure in the nature
of trade nor a trading business.
XXX used his personal savings—not borrowed funds—to purchase PPT, VERI, and LTC. XXX
relied on publicly available information when deciding whether to purchase or sell PPT, VERI,
and LTC, and he never attended any formal courses on trading. And he spent at most about an
167
Under subsection 165(1) of the ITA, an individual’s objection deadline for a particular tax year is the later of (1)
one year after the filing deadline for that year’s tax return and (2) 90 days after the date on that year’s notice of
assessment. The later of these two deadlines is the one-year-after-filing deadline, which falls on April 30, 2019: The
deadline to file the 2017 tax return is April 30, 2018, and one year after that date is April 30, 2019.
168
ITA, ss. 225.1(1) and 225.1(1.1).
169
ITA, s. 225.1(2).
To: Mr. XXX 50

November 6, 2018
hour per day on all trade-related activities. XXX’s lack of specialized knowledge in the crypto-
currency market suggests that he is not a trader.
In 2017, XXX had 77 total transactions involving PPT, VERI, and LTC combined (40 for PPT,
14 for VERI, and 23 for LTC), far less than those of the taxpayers in cases where transaction
frequency played heavily in the decision. XXX could have fully liquidated his holdings in PPT,
VERI, and LTC when the crypto-currency market peaked in December of 2017. Instead, he sold
just enough to rebalance his crypto-currency portfolio. He retained about half of all the VERI
and LTC units that he acquired in 2017. Although he retained only about 8% of his PPT
holdings, his initial investment in PPT far outweighed his initial investments in either VERI or
LTC. So, he needed to sell more PPT units to rebalance his portfolio when the price soared. In
addition, XXX often sold these crypto-currencies at a loss or repurchased them later at a higher
price.
Overall, XXX’s transaction behavior suggested that he sold sufficient holdings to rebalance his
crypto-currency portfolio and protect against the possibility that the market would plummet after
a dramatic rise. He then reinvested when he saw signs of market stability.
Bitcoin, ETH, and SALT Proceeds on Income Account
The proceeds from XXX’s transactions involving Bitcoin, ETH, and SALT are on income
account.
The transactions involving Bitcoin, ETH, and SALT each constituted an adventure in the nature
of trade, and the transactions involving Bitcoin and ETH might comprise a trading business.
XXX seemingly timed the market when selling Bitcoin and ETH. His cash sales of Bitcoin and
ETH peaked when the crypto-currency market exploded in mid-December 2017. From
December 10th to the end of 2017, XXX sold 19.84 Bitcoin for $361,451.21. XXX only sold
Bitcoin for cash in three other months: in September, he sold 11.767 Bitcoin for $53,959.58; in
June, he sold 2.47 Bitcoin for $8,364.79; and, in May, he sold 0.77 Bitcoin for $245.51.
Similarly, from December 12th to the end of 2017, XXX sold 334 ETH units for $287,949.62. He
only sold ETH for cash in three other months: in September, he sold 206.56 ETH units for
$68,073.35; in July, he sold 182 ETH units for $49,505.52; and, in June, he sold 60.30 ETH units
for $29,643.05.
XXX’s transactions involving Bitcoin and ETH also differ from his transactions involving PPT,
VERI, and LTC. First, in 2017, XXX had 77 total transactions involving PPT, VERI, and LTC
To: Mr. XXX 51

November 6, 2018
combined (40 for PPT, 14 for VERI, and 23 for LTC), far less than his 238 transactions
involving Bitcoin and 374 transactions involving ETH. (The ETH figure excludes the
superfluous transactions involving PPT and VERI.) In addition, he sold just enough PPT, VERI,
and LTC to rebalance his crypto-currency portfolio when the prices of these crypto-currencies
skyrocketed. By the year’s end, he still retained about half of all the VERI and LTC units that he
acquired in 2017. Although he retained only about 8% of his PPT holdings, his initial investment
in PPT far outweighed his initial investments in either VERI or LTC. So, he needed to sell more
PPT units to rebalance his portfolio when the price soared. But by the he end of 2017, he retained
only about 2% of the 4,672.97 ETH units and about 4% of the 384.463 Bitcoin that he had
acquired in the year.
Also, XXX’s 238 Bitcoin transactions and 374 ETH transactions greatly exceed those of the
taxpayers in cases where transaction frequency played heavily in the decision. Although he only
carried out 11 SALT transactions in 2017, even a single, isolated transaction may suffice for and
adventure in the nature of trade. Also, XXX seemingly took advantage of a mistake by the
SALT platform and effectively sold more units than he in fact received. Moreover, his SALT
transactions reveal a pattern of buying low and selling high, indicating that XXX was not
rebalancing his portfolio but purchasing with the intent to resell.
The transactions involving SALT failed to comprise a trading business. XXX’s lack of
specialized knowledge in the crypto-currency market suggests that he is not a trader. Also,
XXX’s transactions with SALT exhibited far less frequency than those in cases finding that the
taxpayer engaged in trading.
His transactions involving Bitcoin and ETH, however, might comprise a trading business.
Although it remains unclear whether frequent transactions suffice to render one a trader in the
absence of specialized knowledge, some authority supports this proposition.
Consistency in Reporting
XXX may adopt a different filing position with respect to dispositions involving similar
property. As a result, he may report his proceeds from the PPT, VERI, and LTC transactions on
capital account and his proceeds from the Bitcoin, ETH, and SALT transactions on income
account. The difference in trading activity evidences XXX’s different intentions for his PPT,
VERI, and LTC holdings, one the one hand, and his Bitcoin, ETH, and SALT holdings, on the
other.
To: Mr. XXX 52

November 6, 2018
Suggestions for Further Research
If XXX intends to continue trading Bitcoin, ETH, and SALT in the same fashion as he did in
2017, we recommend further research into whether he might benefit from holding his trading
portfolio in a corporation, which may allow XXX to benefit from the small business deduction.
In addition, due to the time constraints involving the collections-commencement date, we

focused our research on characterizing the profits from XXX’s 2017 crypto-currency
dispositions. We recommend that, once we file a notice of objection to XXX’s 2017 notice of
assessment, he instruct us to perform additional research on characterizing and using the losses
from his 2017 crypto-currency dispositions.
Yours very truly,
ROTFLEISCH & SAMULOVITCH

PROFESSIONAL CORPORATION
Per:
Nathaniel Hills, B.A. (Hon.), J.D.

Senior Associate
NH:kp

Example 2 - Memo Re Character of Crypto Income (Final)

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Example 2 - Memo Re Character of Crypto Income (Final)

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1 2822 Danforth Avenue

1 R o t f l e i s c h & Toronto, Ontario, Canada

DELIVERED BY EMAIL: XXXXXX@hotmail.com

PRIVILEGED & CONFIDENTIAL

Dear Mr. XXX:

Re: Income Characterization of Proceeds from Crypto-Currency Transactions in 2017

From: Rotfleisch & Samulovitch Professional Corporation

QUESTION PRESENTED & SHORT ANSWER

Populous Platform Token, Veritaseum, and Litecoin Proceeds on Capital Account

From: Rotfleisch & Samulovitch Professional Corporation

Bitcoin, Ethereum, and Secured Automated Lending Technology Proceeds on Income

From: Rotfleisch & Samulovitch Professional Corporation

Suggestions for Further Research

From: Rotfleisch & Samulovitch Professional Corporation

In addition, due to the time constraints involving the collections-commencement date, we

XXX was born on October 21, 1980.

From: Rotfleisch & Samulovitch Professional Corporation

XXX Enters the Crypto-currency Market

From: Rotfleisch & Samulovitch Professional Corporation

XXX’s 2017 Profit from Crypto-currency Transactions

XXX’s total profit from crypto-currency transactions in 2017 was $1,591,003.042

 $116,832.01 gain from disposition of Ethereum (“ETH”);

From: Rotfleisch & Samulovitch Professional Corporation

 $1,763.75 loss from disposition of Creditbit (“CRBIT”);

XXX’s Crypto-currency Transactions in 2017

From: Rotfleisch & Samulovitch Professional Corporation

PPT can only be purchased with or sold for ETH.

From: Rotfleisch & Samulovitch Professional Corporation

Populous is a P2P (peer-to-peer) invoice discounting platform that is globalizing what is

From: Rotfleisch & Samulovitch Professional Corporation

By the end of 2017, XXX had retained 9,306.28 units of PPT.

From: Rotfleisch & Samulovitch Professional Corporation

By the end of 2017, XXX had retained 17.339 Bitcoin.

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

By the end of 2017, XXX had retained 96.22 ETH units.

VERI can only be purchased with or sold for ETH.

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

By the end of 2017, XXX had retained 593.522 VERI units.

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

By the end of 2017, XXX had retained 1,411.65 LTC units.

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

Canada has yet to enact legislation—tax or otherwise—dealing expressly with crypto-currency

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

Capital or Income: Distinguishing Between Trading and Investing

 engaged in an adventure or concern in the nature of trade; or

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

Cases Finding that Taxpayer Engaged in Adventure in the Nature of Trade

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

From: Rotfleisch & Samulovitch Professional Corporation

Cases Finding No Adventure in the Nature of Trade

From: Rotfleisch & Samulovitch Professional Corporation

A securities transaction is generally presumed to be an investment and thus on capital account.

Mutual-fund transactions also give rise to a presumption of investment.86