Adventure or Concern in the Nature of Trade in Canada

Overview – Why This Distinction Still Matters for Canadian Taxpayers

The Federal Income Tax Act (the “Tax Act”) outlines the sources of income that are taxable, including income from office, employment, business, and property. The authority for taxing business income is found in section 9(1) of the Tax Act, which states that a taxpayer’s income from business or property is the taxpayer’s profit from that business or property for the year. Section 248(1) of the Tax Act defines “business” to include a profession, calling, trade, manufacture or undertaking of any kind whatever, and an adventure or concern in the nature of trade.

Generally, a taxpayer who carries out a trade or profession consistently for the purpose of earning profit is considered to earn business income. However, where a taxpayer carries out a specific type of transaction infrequently, or even a single time, the transaction may still be considered an adventure or concern in the nature of trade, which results in that income also being characterized as business income.

The reason this distinction matters is because it may be preferable for a taxpayer to characterize a transaction as a capital transaction to attract the lower effective tax rate on capital gains, particularly where the taxpayer has capital losses for the year. The CRA will generally prefer to characterize income as business income rather than capital gains, because business income is fully taxable whereas only 50% of a capital gain is included in income. The same characterization question runs in reverse on losses: a business loss can be deducted against any source of income, while a capital loss can generally only be deducted against capital gains — which is exactly the issue that a recent Tax Court decision on cryptocurrency losses, discussed below, brought into sharp focus. If you believe the CRA has incorrectly characterized a capital gain (or a capital loss) as a business matter, or vice versa, contact our experienced Toronto tax law firm to discuss your situation.

Background – The Six-Factor Test and the Two Common Law Tests

Canadian courts have identified several factors relevant to determining whether a transaction is an adventure or concern in the nature of trade, or has a capital nature instead. In Friesen v Canada, [1995] 3 SCR 103, the Supreme Court of Canada held that the first requirement for an adventure or concern in the nature of trade is a “scheme for profit-making” — meaning the taxpayer must have had a legitimate intention to earn a profit from the transaction. In the leading case Happy Valley Farms Ltd v Her Majesty the Queen, (1986) 7 F.T.R. 3, the Federal Court, Trial Division, set out six factors courts use to differentiate business income from capital gains:

1. The nature of the asset sold;
2. The length of ownership
3. The frequency or number of similar transactions
4. Work expended on or in connection with the property realized
5. The circumstances responsible for the sale of the property; and (6) the taxpayer’s motive in acquiring the asset. Applying these factors, the court in that case held that a taxpayer who purchased 450 acres of farmland in 1969 and sold 400 acres in 1976 had earned business income from the sales.

For a deeper look at how Happy Valley Farms and the secondary-intention doctrine apply in CRA audits and reassessments, see our companion guide on secondary intention.

The Exchequer Court in Minister of National Revenue v Taylor, [1956] C.T.C. 189, identified two further tests for determining whether a transaction is an adventure or concern in the nature of trade. The first, the “Same Kind, Same Way” test, assesses the taxpayer’s conduct before, during, and after the transaction, comparing it to how an ordinary dealer in the same property would behave. Courts consider whether efforts were made shortly after acquiring the property to attract buyers, whether the property was resold shortly after acquisition, and whether the taxpayer took steps to improve the property’s marketability and sold at the first available opportunity. Conduct of this kind points toward an adventure or concern in the nature of trade.

The second test looks at the nature and quantity of the property itself. Where the property’s nature or magnitude suggests it would not produce income or personal enjoyment for the taxpayer through mere ownership, this points toward the property having been acquired solely for resale. Certain properties, such as securities, are presumed to carry an investment character because they can produce income through mere possession (Irrigation Industries Ltd v The Minister of National Revenue, [1962] SCR 346). That presumption is rebuttable, however: the Tax Court of Canada held that a taxpayer incurred business losses, not capital losses, after a rapid series of stock acquisitions were quickly resold at a loss (Hawa v The Queen, 2006 TCC 612).

To illustrate the concept: John is a bank teller who purchases 10,000 cloth masks from a manufacturer in February, in anticipation of a spike in demand. He pays $5,000 for the masks, immediately contacts retailers of various sizes to gauge interest, and a week later sells the entire lot for $30,000. The CRA would typically characterize the resulting $25,000 profit as business income — even though John would prefer it be treated as a capital gain — because the transaction was carried out the same kind and same way an ordinary dealer in such goods would, and the quantity of masks purchased suggests John could not have derived income or personal enjoyment from mere ownership of them.

Courts also look closely at intention, particularly for real estate transactions, which taxpayers often purchase with more than one purpose in mind. In Regal Heights Ltd v Minister of National Revenue, [1960] SCR 902, the Supreme Court held that where it would have been unlikely for a taxpayer to fulfill their primary intention (say, holding as an investment) due to a lack of resources or time, a secondary intention to resell at a profit is sufficient to characterize the resulting profit as business income. The Federal Court of Appeal refined this concept in Canada Safeway Limited v Canada, 2008 FCA 24, holding that the possibility of resale must have been an operating motivation for the purchase.

Figure 1: The four-factor test Canadian courts use to characterize a transaction as business income or a capital gain, including the 2025 crypto update from Amicarelli v The King.

Key Issues and Findings – Recent Developments, Including Cryptocurrency

The “adventure or concern in the nature of trade” doctrine has taken on new relevance as the Tax Court applies it to how the CRA taxes Bitcoin and other digital assets. In Amicarelli v The King, 2025 TCC 185 — released December 9, 2025 — the Tax Court considered whether an individual who lost over $500,000 of Bitcoin when the QuadrigaCX exchange collapsed in 2017 could deduct that loss as a business (non-capital) loss rather than a capital loss, or not at all. (For a fuller discussion of how Amicarelli affects crypto gains reported as capital gains, and its implications for CRA voluntary disclosures, see our companion article.)

The taxpayer had funded her Bitcoin purchases using personal savings, borrowed funds, an RRSP withdrawal, a second mortgage, and high-interest credit cards, and monitored her holdings closely throughout 2017. Justice Sorensen found that this level of financing and engagement reflected a genuine profit-making scheme consistent with the Friesen test, and concluded that the taxpayer’s trading activity amounted to an adventure or concern in the nature of trade. Because the activity was found to be on income account, the resulting loss was a fully deductible business loss rather than a capital loss restricted to offsetting capital gains.

The decision is a reminder that the same “adventure” analysis that applies to real estate or securities applies equally to cryptocurrency, and that the characterization question cuts both ways: taxpayers who want business-income treatment of crypto losses may get it, but taxpayers reporting crypto gains as capital gains face the same scrutiny under the same test.

“Amicarelli confirms what we tell crypto clients facing a CRA reassessment: the same conduct and financing evidence that can secure business-loss treatment for a loss year can just as easily be used against you if you reported an earlier gain as a capital gain. The characterization has to be consistent, and it has to be argued from the facts, not the label the taxpayer prefers.”

— David J. Rotfleisch, founding tax lawyer and CPA at Rotfleisch & Samulovitch, and a Law Society of Ontario Certified Specialist in Taxation.

This is consistent with a September 2025 CRA technical interpretation on the disposition of a right to receive bitcoin, which confirmed that a long holding period does not by itself preclude a finding that an asset was acquired as part of an adventure or concern in the nature of trade, so long as the taxpayer’s intention throughout was resale at a profit rather than long-term investment (2025-1070171E5). That interpretation drew on Wynnyk v Minister of National Revenue, [1978] C.T.C. 2724, Chen v R, 2012 TCC 215, and Paletta International Corporation v Canada, 2021 FCA 182, and also adopted the definition of an adventure in the nature of trade proposed by Hogg, Magee and Li and approved by the Federal Court of Appeal in Canada Safeway: an isolated transaction, lacking the frequency or system of a trade, in which the taxpayer buys property intending to sell it at a profit and later does so.

The doctrine has also continued to develop outside the crypto context. In Leonard v The Queen, 2021 TCC 33, the Tax Court applied the Friesen profit-making-scheme test to a distressed-debt transaction, finding that the taxpayer had acquired a mortgage and related debt as part of an adventure or concern in the nature of trade, and separately considered when the resulting loss was realized. The case is a useful reminder that the doctrine is not limited to real estate, securities, or goods — it extends to any isolated or infrequent transaction entered into with a profit-making purpose, including debt instruments and, as Amicarelli confirms, digital assets.

Implications for Canadian Taxpayers

For taxpayers who buy and sell real estate, securities, cryptocurrency, or other property outside the ordinary course of an established business, the practical stakes are significant. A finding that a transaction was an adventure or concern in the nature of trade means the full amount of any profit is taxable as business income rather than having only half taxed as a capital gain — but it also means that a full loss is deductible against any source of income, rather than being trapped as a capital loss that can only offset capital gains.

The CRA and the courts will look at the whole factual picture: how the property was financed, how often the taxpayer engaged in similar transactions, how closely the taxpayer monitored the asset, what efforts were made to improve or market it, what the taxpayer’s stated and inferred intentions were at the time of acquisition, and — since the characterization also affects how the proceeds of disposition on the underlying asset are reported — how the disposition itself was documented and timed.

Contemporaneous evidence — correspondence, financing records, and the taxpayer’s own conduct — tends to carry more weight than after-the-fact characterization on a tax return.

Takeaway

Whether a transaction is an adventure or concern in the nature of trade or a capital transaction turns on the specific facts, assessed against a well-established body of case law that now extends to cryptocurrency and other digital assets. The Amicarelli decision confirms that the same profit-making-scheme and “Same Kind, Same Way” tests developed for real estate and securities apply directly to crypto trading, and that CRA and the courts will apply the doctrine symmetrically to both gains and losses.

Taxpayers who are uncertain how a past or planned transaction will be characterized, or who are facing a CRA reassessment on this basis, should get tax advice before filing or responding to an audit.

Pro Tax Tips – Income Characterization

The characterization of income as business income or capital gains can have very different tax consequences depending on a taxpayer’s individual circumstances, and the analysis is highly fact-specific. Generally, taxpayers prefer capital-gains treatment for profitable transactions, since only half of a capital gain is included in income, while a business loss is often more valuable than a capital loss because it can be deducted against any source of income rather than only against capital gains.

For help characterizing your transactions, including cryptocurrency transactions, to achieve the most favourable and defensible tax treatment based on your circumstances, contact our experienced Canadian tax law firm.

“We still see clients treat the capital-versus-business question as paperwork instead of substance. It isn’t. Whether it’s a rental property, a block of shares, or a Bitcoin position, the characterization gets decided by what you actually did — how it was financed, how often you transacted, how closely you watched it — long before anyone files a return. Get that analysis right at the outset and there’s rarely a fight with the CRA later.”

— David J. Rotfleisch, founding tax lawyer and CPA at Rotfleisch & Samulovitch, and a Law Society of Ontario Certified Specialist in Taxation.

FAQs Aboutu Adventure or Concern in Nature of Trade

What does “adventure or concern in the nature of trade” mean under the Income Tax Act?

It is a common law concept, incorporated into the definition of “business” in section 248(1) of the Income Tax Act, that captures isolated or infrequent transactions entered into with the intention of earning a profit. Even a single transaction can be taxed as business income if it meets this test.

How is business income different from capital gains for tax purposes?

Business income is fully included in income and taxed at full marginal rates, while only 50% of a capital gain is included in income. On the loss side, a business loss can be deducted against any source of income, while a capital loss can generally only be deducted against capital gains.

What test do courts use to decide if a transaction is an adventure in the nature of trade?

Courts weigh several factors, including the six factors from Happy Valley Farms (nature of the asset, length of ownership, frequency of similar transactions, work expended, circumstances of the sale, and motive), along with the “Same Kind, Same Way” test from Taylor and the profit-making-scheme requirement from Friesen.

Can a single, one-time transaction be treated as business income?

Yes. Unlike a trade or profession carried on consistently, an adventure or concern in the nature of trade can arise from a single transaction, provided the taxpayer had a genuine intention to profit and the surrounding facts are consistent with that of an ordinary dealer in similar property.

Does buying and selling cryptocurrency count as an adventure in the nature of trade?

It can. In Amicarelli v The King, 2025 TCC 185, the Tax Court found that an individual’s Bitcoin trading through QuadrigaCX amounted to an adventure or concern in the nature of trade based on her financing methods and the frequency and intensity of her trading activity.

What happened in Amicarelli v The King and why does it matter for crypto investors?

The taxpayer lost over $500,000 in Bitcoin when QuadrigaCX collapsed and claimed the loss as a fully deductible business loss. The Tax Court agreed that her trading was an adventure or concern in the nature of trade, meaning the loss was deductible against any income source rather than trapped as a capital loss. The same reasoning applies to crypto gains reported as capital gains.

Does a long holding period protect a transaction from being classified as business income?

Not necessarily. CRA has confirmed that a long holding period does not, by itself, prevent a finding that a transaction was an adventure or concern in the nature of trade, provided the taxpayer’s intention throughout was to resell the property at a profit rather than hold it as a long-term investment.

Are gains from flipping real estate treated as business income or capital gains?

Real estate flips are frequently characterized as business income under the adventure or concern in the nature of trade doctrine, particularly where the property was bought and quickly resold, improved for resale, or acquired with a secondary intention to sell if a primary investment purpose proved unworkable.

What should I do if the CRA incorrectly classifies my capital gain as business income (or vice versa)?

Consult an experienced Canadian tax lawyer to review the facts of your transaction against the established legal tests. A tax lawyer can help identify the accurate and most favourable characterization for your tax filing and, if necessary, dispute a CRA reassessment.

Will I be charged a penalty if I mistakenly classify business income as capital gains?

The CRA will only accept one return per tax year; once filed, you cannot file a new one, but you can correct the original by way of an adjustment. The CRA will charge a penalty where a taxpayer, knowingly or under circumstances of gross negligence, makes a false statement or omission on a return — the penalty is the greater of $100 or 50% of the understated tax.

When a non-profit organization disposes of a capital asset, are the capital gains taxed by the CRA?

The CRA’s position is that when a non-profit organization disposes of a capital asset, any resulting taxable capital gain is included in the organization’s income but exempt from tax, subject to special rules where the organization’s main purpose is to provide dining, recreational, or sporting facilities for its members.

How can a Canadian tax lawyer help if the CRA reassesses a transaction as an adventure in the nature of trade?

A tax lawyer can review the financing, timing, and conduct evidence CRA relied on, assess whether the reassessment is supported by the case law discussed above, and represent you at the objection or Tax Court appeal stage if the characterization is incorrect.

Does giving or selling property to a family member change how it is characterized for tax purposes?

Not on its own — the same tests apply regardless of who the buyer is. But transfers to family members raise their own separate issues, including income-attribution rules; see our guide on transferring money to a child for how those rules interact with a related capital or business transaction.

DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.