1 December 1998 External T.I. 9829965 - COMMODITY FUTURES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Can a taxpayer switch from the capital treatment of reporting gains or losses from commodity futures to the income treatment?

Position: Yes

Reasons: The correct method in law for reporting such gains and losses is the income treatment method. Paragraph 8 of IT-346R seems to indicate a taxpayer can switch. Furthermore, there are several memoranda on file stating that we can not stop a taxpayer from taking income treatment.

XXXXXXXXXX 982996
J. E. Grisé
December 1, 1998

Dear XXXXXXXXXX:

Re: Commodity Futures

This is in reply to your letter of November 7, 1998 concerning the reporting of losses incurred in trading commodity futures in 1998.

On the basis of the information provided in your letter, it seems that you have been considered a “speculator” as described in paragraph 6 of the attached Interpretation Bulletin IT-346R, Commodity Futures and Certain Commodities. Furthermore, you have indicated that the gain or losses on prior year commodity future trades were reported as capital gains and losses (referred to as “capital treatment” in paragraph 7 of IT-346R).

As indicated in paragraph 8 of IT-346R, a speculator may use the income treatment (see paragraph 3 of IT-346R) in reporting gains and losses in commodity futures. However, if income treatment is used in a year by a speculator that method must be followed consistently from year to year. If that method is chosen, the Department will not permit a change in the basis of reporting. Furthermore, where a taxpayer changes from the capital treatment to the income treatment, the Department may reassess a taxpayer’s returns of prior years that are not statute-barred, and treat the taxpayer’s gains or losses of those earlier years on the same basis. Generally, a taxpayer’s income tax returns for the last three prior years are not statute barred.

Generally, a taxpayer who reports commodity future losses using the capital treatment, will be able to offset such capital losses against capital gains from all sources. For example, a capital gain from the disposition of stocks in a public corporation could offset a capital loss from a commodity future trade.

We hope our comments will be helpful.

Yours truly,

J. F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure

cc Windsor Tax Services Office

- 2 -