Tax Court of Canada


Income tax

Capital gains and losses

Taxpayer did not have intention to hedge as he speculated by entering into forward contract

Taxpayer made cash settlement payments in settlement of forward contract, which was bet against price of his common shares in bank. Taxpayer treated cash settlement payments as being on income account under s. 9(1) of Income Tax Act and claimed business losses. Minister of National Revenue reassessed taxpayer on basis that payments were made on account of capital and resulted in capital losses. Taxpayer appealed. Appeal allowed. Cash settlement payments were payments made on income account resulting in business losses. Forward contract was entered into by taxpayer as adventure or concern in nature of trade as speculative instrument. Taxpayer’s sole purpose in entering into forward contract was to speculate on and profit from anticipated decline in trading price of bank’s shares. Scheme for profit-making was present, as taxpayer had legitimate intention of gaining profit from forward contract. Taxpayer did not intend to sell his shares in bank so by entering into forward contract, he increased his risk as he did not know if he would have to make payment or if he would receive payment. Reduction of taxes otherwise payable was not one of purposes of taxpayer entering into forward contract. Taxpayer did not hedge capital asset of his bank shares when he entered into forward contract. Taxpayer did not have intention to hedge as he speculated by entering into forward contract. Facts did not show link in terms of quantum and timing between forward contract and ownership of or transaction in respect of bank’s shares.

MacDonald v. The Queen (2017), 2017 CarswellNat 3934, 2017 CarswellNat 9106, 2017 TCC 157, 2017 CCI 157, Dominique Lafleur J. (T.C.C. [General Procedure]).

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