Linden,
J.A.:—This
is
an
appeal
by
the
Crown
from
a
decision
of
the
Associate
Chief
Justice,
dated
January
25,
1989,
in
which
he
decided
in
favour
of
the
taxpayer
in
relation
to
two
different
reassessments
for
the
1978,
1979,
1980
and
1981
taxation
years.
There
are
two
separate
issues
involved,
one
dealing
with
the
appropriateness
of
deductions
claimed
as
a
result
of
certain
donations
to
the
Royal
Ontario
Museum
(in
1978
and
1980)
and
the
second
concerning
the
method
of
accounting
used
to
record
profits
from
trading
in
gold
futures
contracts
(in
1978
to
1981).
I
shall
deal
with
each
of
these
distinct
matters
separately.
I.
Donations
to
the
Royal
Ontario
Museum
(a)
The
Substantive
Issue
The
first
major
issue
is
whether
the
Associate
Chief
Justice
erred
in
holding
that
two
collections
of
ancient
textiles
known
as
the
Abemayor
Collection
and
the
Wilkinson
Collection
were
"gifts"
to
the
Royal
Ontario
Museum
(ROM)
so
as
to
qualify
as
deductions
permitted
by
paragraph
110(1)(b.1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
which
reads
as
follows:
Gifts
to
institutions.—the
aggregate
of
gifts
of
objects
that
the
Canadian
Cultural
Property
Export
Review
Board
has
determined
meet
all
of
the
criteria
set
out
in
paragraphs
23(3)(b)
and
(c)
of
the
Cultural
Property
Export
and
Import
Act,
which
gifts
were
not
deducted
under
paragraph
(a)
or
(b)
and
were
made
by
the
taxpayer
in
the
year
(and
in
the
five
immediately
preceding
taxation
years,
to
the
extent
of
the
amount
thereof
that
was
not
deductible
under
this
Act
in
computing
the
taxable
income
for
the
taxpayer
for
any
preceding
taxation
year)
to
institutions
or
public
authorities
in
Canada
that
were,
at
the
time
the
gifts
were
made,
designated
under
subsection
26(2)
of
the
Act
either
generally
or
for
a
purpose
related
to
those
objects,
not
exceeding
the
amount
remaining,
if
any,
when
the
amounts
deductible
for
the
year
under
paragraphs
(a)
and
(b)
are
deducted
from
the
income
of
the
taxpayer
for
the
year,
if
payment
of
the
amounts
given
is
proven
by
filing
receipts
with
the
Minister
that
contain
prescribed
information
The
Income
Tax
Act
does
not
define
the
word
"gift",
so
that
the
general
principles
of
law
with
regard
to
gifts
are
utilized
by
the
courts
in
these
cases.
As
Mr.
Justice
Stone
explained
in
The
Queen
v.
McBurney,
[1985]
2
C.T.C.
214,
85
D.T.C.
5433,
at
page
218
(D.T.C.
5435):
"The
word
gift
is
not
defined
in
the
statute.
I
can
find
nothing
in
the
context
to
suggest
that
it
is
used
in
a
technical
rather
than
its
ordinary
sense."
Thus,
a
gift
is
a
voluntary
transfer
of
property
owned
by
a
donor
to
a
donee,
in
return
for
which
no
benefit
or
consideration
flows
to
the
donor
(see
Heald,
J.
in
The
Queen
v.
Zandstra,
[1974]
C.T.C.
503,
74
D.T.C.
6416,
at
page
509
(D.T.C.
6420)).
The
tax
advantage
which
is
received
from
gifts
is
not
normally
considered
a
"benefit"
within
this
definition,
for
to
do
so
would
render
the
charitable
donations
deductions
unavailable
to
many
donors.
In
tax
law,
form
matters.
A
mere
subjective
intention,
here
as
elsewhere
in
the
tax
field,
is
not
by
itself
sufficient
to
alter
the
characterization
of
a
transaction
for
tax
purposes.
If
a
taxpayer
arranges
his
affairs
in
certain
formal
ways,
enormous
tax
advantages
can
be
obtained,
even
though
the
main
reason
for
these
arrangements
may
be
to
save
tax
(see
Canada
v.
Irving
Oil
Ltd.,
[1991]
1
C.T.C.
350,
91
D.T.C.
5106,
per
Mahoney,
J.A.).
If
a
taxpayer
fails
to
take
the
correct
formal
steps,
however,
tax
may
have
to
be
paid.
If
this
were
not
so,
Revenue
Canada
and
the
courts
would
be
engaged
in
endless
exercises
to
determine
the
true
intentions
behind
certain
transactions.
Taxpayers
and
the
Crown
would
seek
to
restructure
dealings
after
the
fact
so
as
to
take
advantage
of
the
tax
law
or
to
make
taxpayers
pay
tax
that
they
might
otherwise
not
have
to
pay.
While
evidence
of
intention
may
be
used
by
the
courts
on
occasion
to
clarify
dealings,
it
is
rarely
determinative.
In
sum,
evidence
of
subjective
intention
cannot
be
used
to
"correct"
documents
which
clearly
point
in
a
particular
direction.
The
learned
trial
judge
concluded
that
the
plaintiff
taxpayer
had
title
to
the
Abemayor
and
Wilkinson
Collections
and
was
legally
in
a
position
to
donate
them
to
the
ROM.
He
further
held
that
"the
existence
of
a
document
purporting
to
pass
title
of
the
textiles
from
Mrs.
Abemayor
to
the
ROM
does
not
change
my
view
of
the
situation.”
The
trial
judge
also
found
that
"the
Wilkinson
Collection
was
purchased
by
the
plaintiff
(taxpayer)
and
processed
by
the
Museum
.
.
.
in
the
same
manner
as
the
Abemayor
Collection."
With
respect,
this
conclusion
was
based
on
an
error
of
law,
in
that
the
trial
judge
failed
to
appreciate
the
importance
of
the"document
purporting
to
pass
title”
dated
March
16,
1978,
which
legally
transferred
the
title
of
the
Abemayor
Collection
to
the
ROM,
not
to
the
taxpayer.
No
such
transfer
document
to
the
ROM
existed
in
the
case
of
the
Wilkinson
Collection,
and,
hence,
he
was
incorrect
in
holding
them
to
be
similar
transactions,
but
he
was
correct
in
so
far
as
his
characterization
of
the
Wilkinson
gift
was
concerned.
The
evidence
before
the
trial
judge
was
that,
as
a
result
of
consultations
with
Dr.
Veronika
Gervers,
the
Associate
Curator
of
the
Textiles
Department
of
the
ROM,
Mr.
Friedberg
was
prepared,
by
1978,
to
assume
the
financial
burden
of
acquiring
the
tapestries
for
the
museum.
At
that
time
it
was
unclear
what
the
tax
consequences
of
such
an
acquisition
would
be,
but
Mr.
Friedberg
indicated
that
he
did
not
wish
to
be
“out
of
pocket"
as
a
result
of
any
donation
he
would
make.
Some
discussion
of
what
arrangements
would
be
made
if
the
property
was
not
favourably
characterized
by
the
Canadian
Cultural
Property
Export
Review
Board
also
took
place,
in
which
case
both
a
permanent
or
temporary
loan
of
the
tapestries
were
contemplated.
It
is
clear
that
it
is
possible
to
make
a
"profitable"
gift
in
the
case
of
certain
cultural
property.
Where
the
actual
cost
of
acquiring
the
gift
is
low,
and
the
fair
market
value
is
high,
it
is
possible
that
the
tax
benefits
of
the
gift
will
be
greater
than
the
cost
of
acquisition.
A
substantial
incentive
for
giving
property
of
cultural
and
national
importance
is
thus
created
through
these
benefits.
But
not
every
gift
will
be
found
to
benefit
from
these
provisions.
It
all
depends
on
how
the
transaction
is
characterized,
for
one
cannot
give
what
one
does
not
own.
The
key
document,
dated
March
16,
1978
and
prepared
by
Mrs.
Abemayor's
lawyer,
Mr.
Guterman,
was
signed
by
Mrs.
Abemayor
and
reads
as
follows:
KNOW
ALL
MEN
BY
THESE
PRESENTS,
that
I,
NELLY
ABEMAYOR,
residing
at
40
Schenck
Avenue,
Great
Neck,
New
York,
DO
HEREBY
assign,
transfer
and
set
over
all
of
my
right,
title
and
interest
in
and
to
certain
Islamic
Textiles
listed
in
Schedule
"A"
annexed
hereto,
to
ROYAL
ONTARIO
MUSEUM,
100
Queens
Park,
Toronto,
Ontario,
Canada
M5S
2C6,
for
and
in
consideration
of
the
sum
of
$67,500
U.S.
dollars,
by
check
subject
to
collection,
receipt
of
which
is
hereby
acknowledged,
hereby
warranting
the
title
to
said
Islamic
Textiles.
The
said
Museum
by
its
curators
has
examined
these
textiles
and
photographed
them
and
its
curators
are
experts
in
this
field,
and
is
purchasing
same
without
any
representation
by
the
seller
or
reliance
upon
any
representation
by
the
seller.
This
purchase
is
therefore
being
made
without
any
representation
or
warranty
by
the
seller
with
respect
to
authenticity,
age,
period,
condition
or
any
other
warranty
of
any
kind
except
the
warranty
of
title
as
above.
IN
WITNESS
WHEREOF,
the
said
Nelly
Abemayor
has
hereunto
set
her
hand
and
seal
this
16th
day
of
March,
1978.
/s/
Nelly
Abemayor
(L.S.)
Nelly
Abemayor
ACCEPTED
AND
AGREED
TO:
ROYAL
ONTARIO
MUSEUM
by
Veronika
Gervers
This
document
clearly
contains
a
transfer
of
title
to
the
ROM,
which
obviously
reflected
Mrs.
Abemayor's
understanding
of
the
deal,
even
though
others
may
have
had
a
different
view
of
it.
There
is
some
doubt
whether
she
would
have
agreed
to
transfer
the
title
to
a
private
individual,
since
it
was
evident
to
all
that
she
wanted
the
collection
to
go
to
the
ROM,
not
to
an
individual,
and
that
is
why
she
was
prepared
to
accept
in
payment
for
it
something
less
than
she
thought
was
its
market
value.
The
argument
by
counsel
for
the
taxpayer
that
the
purport
of
the
sale
document
was
merely
a
disclaimer
is
not
borne
out
by
its
language.
It
certainly
contains
a
disclaimer,
but
this
document
was
a
formal
transfer
of
title
in
the
goods
to
the
ROM
from
Mrs.
Abemayor.
The
other
documentation
made
before
or
at
the
time
of
sale
supports
this
characterization
of
the
transaction.
The
formal
written
offer
to
sell
the
Collection
was
to
the
ROM,
not
to
the
taxpayer
(document
dated
January
27,
1978).
The
customs
documents
dated
March
16,
1978,
which
were
required
to
bring
the
collection
into
Canada
from
New
York,
were
made
out
in
the
name
of
the
ROM,
the
form
containing
the
words
"purchased
by
the
ROM".
The
letter
of
the
Chairman
of
the
ROM
dated
April
4,
1978,
thanking
Mrs.
Abemayor,
used
the
words
"you
generously
assisted
the
Museum
in
acquiring
[the
Collection]",
indicating
that
he
thought
the
Collection
had
already
been
acquired
by
the
ROM,
even
though
one
might,
if
one
tried
hard,
render
those
words
more
ambiguous
so
as
to
impart
another
possible
meaning.
Finally,
on
October
1,
1982,
Mrs.
Abemayor,
in
her
letter
to
the
Department
of
Revenue,
reiterated
her
view
that
she
sold
the
collection
to
the
ROM
in
March
1978,
although
she
acknowledged
that
the
money
came
from
the
taxpayer.
In
my
view,
the
loan
documentation
and
the
gift
forms
that
were
prepared
later
by
the
ROM
in
an
effort
to
repair
the
situation
were
of
no
legal
effect.
The
approval
of
the
Canadian
Cultural
Property
Export
Review
Board
was
similarly
of
no
significance
on
this
issue.
There
was
much
confusion
and
much
duplication
of
documentation
following
the
transaction
in
order
to
try
to
make
the
written
record
conform
to
the
wishes
of
the
taxpayer
in
order
to
get
the
full
tax
benefit
of
this"
gift.”
Unfortunately,
however,
nothing
was
done
to"
rectify”
the
key
transfer
document
from
Mrs.
Abemayor
to
the
ROM,
perhaps
because
she
probably
would
not
have
agreed
to
change
it.
(And,
if
she
had
agreed
to
pass
the
title
to
the
taxpayer,
she
would
have
undoubtedly
insisted
on
a
guarantee
that
the
Collection
be
given
to
the
ROM,
which
would
also
have
defeated
the
legal
conclusion
that
there
was
a
gift
of
the
textiles
to
the
ROM
from
the
taxpayer.
(See
The
Queen
v.
Burns,
[1988]
1
C.T.C.
201,
88
D.T.C.
6101
(F.C.T.D.);
aff'd
[1990]
1
C.T.C.
350,
90
D.T.C.
6335
(F.C.A.).)
The
only
legal
conclusion
that
one
can
draw
from
the
documents
concerning
the
Abemayor
Collection
is
that
the
taxpayer
made
a
gift
of
the
money
to
the
ROM,
with
which
it
acquired
the
collection.
He
did
not
hold
the
title
to
the
textiles,
nor
did
he
ever
acquire
the
title,
and
one
cannot
give
what
one
does
not
have.
This
may
not
have
been
his
subjective
intention,
but
the
documentation
points
inexorably
to
that
legal
conclusion.
On
the
Abemayor
Collection
issue,
then,
the
trial
judge
erred
and
the
appeal
will
be
allowed.
On
the
Wilkinson
Collection
issue,
on
the
other
hand,
the
trial
judge
was
correct
in
concluding
that
the
documentation
and
other
evidence
demonstrated
that
the
taxpayer
made
a
gift
to
the
ROM.
All
the
documents
indicated
that
Mr.
Wilkinson
transferred
title
to
the
taxpayer,
who
then
loaned
the
material
to
the
ROM,
and
finally
donated
it
to
the
ROM.
There
never
was
any
transfer
by
the
seller
to
the
ROM.
In
relation
to
the
Wilkinson
Collection,
Friedberg
gave
the
ROM
something
which
he
owned
and
he
was,
therefore,
entitled
to
claim
the
appropriate
deduction
for
it.
(b)
The
Evaluations
Because
of
my
holding
that
there
was
no“
gift”
of
the
Abemayor
Collection
by
the
taxpayer
to
the
Royal
Ontario
Museum,
it
is
not
strictly
necessary
to
deal
with
the
matter
of
its
evaluation.
However,
in
the
event
that
I
am
in
error,
it
seems
prudent
to
give
reasons
in
relation
to
that
issue.
The
main
point
argued
by
the
Crown
on
this
issue
is
that
the
three
evaluators,
who
were
asked
to
evaluate
the
fair
market
value
of
the
Abemayor
Collection,
did
not
take
into
account
the
price
actually
paid
for
the
textiles.
This,
it
is
contended,
was
an
error
of
law.
The
Associate
Chief
Justice
accepted
the
evidence
of
the
three
evaluators
of
the
Abemeyor
Collection,
whose
figures
were
as
follows:
J.
Anderson
|
$528,125
|
F.
Crane
|
412,000
|
V.
Goss
|
538,400
|
The
approximate
average
of
these
three
amounts,
$496,175,
was
accepted
by
the
Associate
Chief
Justice
as
the
fair
market
value
of
the
Collection.
He
knew
the
actual
sale
price
of
$67,500,
the
circumstances
of
the
sale
and
he
also
heard
the
viva
voce
testimony
of
the
three
experts
who
testified
at
the
trial.
One
must
note
that,
surprisingly
and
in
retrospect
unwisely,
the
Crown
did
not
call
any
expert
evidence
on
this
matter,
arguing
simply
that
the
sale
price
was
the
fair
market
value.
Even
though
I
might
have
concluded
otherwise
had
I
been
the
trial
judge,
I
do
not
see
any
basis
for
interfering
with
the
findings
of
fact
on
this
issue
by
the
Associate
Chief
Justice.
As
Mr.
Justice
Le
Dain
wrote
in
Century
Insurance
Company
of
Canada
v.
N.V.
Bocimar
S.A.,
[1987]
1
S.C.R.
1247,
76
N.R.
212,
at
page
1249:
.
.
.
The
limits
to
the
scope
of
appellate
review
of
the
findings
of
fact
by
a
trial
court,
which
were
affirmed
by
this
Court
in
Stein
v.
The
Ship
"Kathy
K",
[1976]
2
S.C.R.
802,
and
other
decisions,
also
apply
in
my
opinion
to
the
review
of
the
findings
of
a
trial
court
based
on
expert
testimony
.
.
.
As
for
the
evaluations
of
the
Wilkinson
Collection,
there
is
also
no
basis
for
interference.
The
trial
judge
heard
the
viva
voce
evidence
of
only
one
evaluator
on
this
matter,
FE
Crane,
who
testified
that
the
collection
was
worth
$142,650.
He
also
had
before
him
two
written
appraisals
by
two
evaluators
who
had
died
prior
to
the
time
of
trial
and
therefore
could
not
testify
viva
voce.
Their
evaluations,
also
done
without
knowledge
of
the
actual
sale
price,
were
as
follows:
J.
Ogden
|
$305
,000
|
O.
Ullman
|
240,000
|
The
approximate
average
of
these
three
evaluations,
$229,437,
was
claimed
by
the
taxpayer
in
1980
and
found
to
be
correct
by
the
trial
judge,
who
was
well
aware
of
the
purchase
price
of
$12,000.
1
do
not
see
any
basis
for
altering
that
finding
of
fact,
even
though
I
might
have
arrived
at
a
different
figure
had
I
been
the
trial
judge.
II.
Gold
Futures
Contracts
The
second
major
issue
is
whether
the
Associate
Chief
Justice
erred
in
allowing
as
deductions
business
losses
arising
out
of
trading
in
gold
futures
by
the
taxpayer
in
each
of
the
following
taxation
years,
as
follows:
1978
—
$
512,126
1979
934,387
1980
—
1,276,172
1981
—
4,425,186
The
Crown
contends
that
the
accounting
method
used
to
record
these
losses
by
the
taxpayer
was
not
the
best
one,
according
to
the
evidence;
hence
the
losses
should
be
allowed
only
in
the
years
following
the
individual
years
in
which
they
were
claimed.
Reliance
was
also
placed
on
subsection
245(1),
dealing
with
artificial
transactions,
which
reads:
(1)
In
computing
income
for
the
purposes
of
this
Act,
no
deductions
may
be
made
in
respect
of
a
disbursement
or
expense
made
or
incurred
in
respect
of
a
transaction
or
operation
that,
if
allowed,
would
unduly
or
artificially
reduce
the
income.
The
evidence
before
the
trial
judge
indicated
that
the
taxpayer
traded
in
futures,
including
gold
futures,
on
behalf
of
clients
as
well
as
on
his
own
behalf.
The
evidence
explained
that
a
futures
contract
is
an
agreement
for
the
purchase
and
sale
of
a
commodity,
where
the
delivery
of
the
commodity
is
fixed
for
a
future
date
and
where
the
price
and
quantity
are
also
fixed.
These
futures
contracts
have
value
and
there
has
developed
a
sophisticated
speculative
trade
in
them.
Holders
of
futures
contracts
must
either
take
delivery
or
make
delivery
of
the
commodities,
depending
on
whether
they
are
on
the
buy
or
sell
side
of
the
contract.
This
eventuality
does
not
occur
normally,
since
most
traders
resell
their
contracts
prior
to
the
appointed
delivery
dates.
This
is
referred
to
as
"liquidating"
their
positions.
Buying
a
futures
contract
is
termed
"going
long”,
whereas
selling
a
futures
contract
is
called
"going
short.”
If
an
investor
buys
or
sells
a
futures
contract
without
doing
anything
to
hedge
or
protect
his
position,
he
is
said
to
have
taken
an
"outright
position”.
It
was
also
clear
on
the
evidence
that
it
is
also
possible
for
investors
to
take
a
Eosition
called
a
commodity
"spread",
which
involves
simultaneously
"going
ong”
(buying)
and
"going
short"
(selling)
in
an
equivalent
number
of
futures
contracts
for
delivery
in
different
months
at
different
prices.
These
transactions
are
called
“legs”.
Thus,
a
spread
transaction
is
composed
of
a
long
(buy)
leg
and
a
short
(sell)
leg.
A
spread
transaction
may
be
entered
into
simultaneously,
or
it
may
be
entered
into
by
going
long
outright
first,
and
then
going
short
afterwards.
Or
an
investor
might
go
short
outright
first
and
later
go
long.
Whenever
investors
buy
or
sell
particular
futures
contracts,
there
must
be
a
corresponding
buy
or
sell
for
that
contract
in
order
to
avoid
being
forced
to
take
or
to
make
delivery
of
the
commodity.
Each
of
these
legs
may
be
"closed
out”
separately.
One
may
sell
contracts
obtained
on
the
long
legs
or
buy
contracts
to
cover
those
sold
on
the
short
legs,
thus
taking
advantage
of
fluctuations
in
the
market
both
ways.
Losses
suffered
in
buying
may
thus
be
offset
by
gains
made
in
selling.
There
are
many
risks
involved
in
the
trading
of
commodity
futures,
the
price
of
which
may
fluctuate
daily,
depending
on
numerous
factors
such
as
interest
rates,
dollar
exchange
rates,
international
crises,
volume
of
trading,
the
value
of
the
commodity,
etc.
The
amount
of
risk
is
related
to
the
time
between
the
two
legs
of
the
spread.
Outright
positions
are
the
riskiest
aspect
of
the
trade,
but
trading
in
spreads
is
also
quite
risky.
Investors
win
or
lose
depending
on
their
ability
to
predict
the
influence
of
the
various
factors
on
the
spread
from
month
to
month.
All
futures
contracts
are
margin
transactions,
in
that
only
a
small
percentage
(five
to
ten
per
cent)
of
the
value
of
the
contract
has
to
be
deposited
with
the
broker
as
a
guarantee.
In
order
to
ensure
the
adequacy
of
the
margin,
therefore,
brokers
calculate,
on
a
daily
basis,
the
changes
in
net
value
of
all
the
contracts
held
by
their
customers.
This
is
called
"marking
to
the
market".
Thus,
broker
losses
and
broker
gains
are
calculated
each
trading
day
to
determine
whether
or
not
additional
margin
is
required.
This
analysis
is
the
same
for
outright
positions
as
it
is
for
spread
positions.
The
taxpayer
traded
extensively
in
gold,
using
both
outright
and
spread
positions,
during
the
taxation
years
in
issue.
He
did
so
primarily
to
earn
profits
from
his
speculation,
but
also
for
purposes
of
tax
planning,
in
that
he
could
achieve
substantial
deferral
of
income
thereby.
For
purposes
of
calculating
his
personal
income
tax
liability
in
the
taxation
years
in
question,
the
taxpayer
employed
a
different
method
of
accounting,
called
the"
lower
of
cost
or
market
method”.
Pursuant
to
this
method,
a
gain
in
trading
is
recognized
as
income
when
it
is
closed
out
and
sold,
whereas
an
unrealized
loss
is
immediately
accounted
for
and
debited
from
income.
In
each
taxation
year
under
appeal,
the
taxpayer
closed
out
his
losing
legs
on
the
spread
positions
but
deferred
closing
out
those
that
were
showing
a
profit
until
after
the
end
of
the
taxation
year,
thereby
securing
for
himself
substantial
deferrals
of
income.
The
Crown
challenges
this
because,
under
the
mark
to
market
method”,
which,
it
contends,
better
reflects
the
economic
reality,
he
would
have
had
to
include
both
the
losses
and
the
gains
immediately,
as
is
done
by
the
brokers
each
day.
We
are
told
that
this
method
of
accounting
is
now
required
in
the
United
States,
but
there
is
no
such
law
in
Canada.
Canadian
law
permits
taxpayers
to
calculate
their
income
in
accordance
with
generally
accepted
accounting
principles.
The
key
issue,
barring
specific
statutory
direction,
is
whether
"it
is
appropriate
to
the
business”
and
whether
it"
tells
the
truth
about
the
taxpayer's
income.”
In
other
words,
the
"opinion
of
accounting
experts
that
is
an
accepted
system
and
is
appropriate
to
the
taxpayer's
business
and
most
nearly
accurately
reflects
his
income
position”
may
be
adopted
by
the
Court.
(See
M.N.R.
v.
Publishers'
Guild
of
Canada
Ltd.,
[1957]
C.T.C.
1,
57
D.T.C.
1017,
at
pages
16-17
(D.T.C.
1026),
per
Thorson,
P.)
Two
accounting
experts
testified
before
the
trial
judge,
a
Mr.
Thornton,
called
by
the
Crown,
and
a
Mr.
Carscallen,
called
by
the
taxpayer.
Mr.
Thornton
testified
that
he
felt
the
mark
to
market
method
was
best
but
he,
along
with
Mr.
Carscallen,
recognized
that
it
was
acceptable,
according
to
generally
accepted
accounting
principles,
to
account
for
these
speculative
futures
contracts
using
the
lower
of
cost
or
market
method.
Some
businesses
used
it
but
most
did
not.
They
both
agreed
that
the
mark
to
market
method
would
be
a
more
accurate
reflection
of
the
true
financial
position
of
the
taxpayer,
but
no
legislation
required
that
this
method
be
used.
The
trial
judge
concluded
as
follows:
There
is
no
provision
in
the
Income
Tax
Act
requiring
a
particular
accounting
method
for
commodities
traders
comparable,
for
example,
to
the
regulations
enacted
some
years
ago
denying
lawyers
the
option
of
reporting
income
on
either
a
cash
or
accrual
basis.
In
the
absence
of
such
a
regulation
denying
this
kind
of
a
choice
to
the
commodity
trader,
I
see
no
reason
why
the
taxpayer
should
not
be
able
to
conduct
his
affairs
as
he
did
here.
Expert
accounting
witnesses
agreed
that
both
the
marked
to
market
or
lower
of
cost
or
market
methods
of
accounting
were
in
use
in
Canada
and
the
United
States
for
speculative
trading
in
futures
contracts
in
the
years
in
question,
and
that
there
were
no
standard
principles
requiring
the
use
of
one
method
as
opposed
to
the
other.
Academic
articles
on
accounting
methods
outlined
both
systems
and
noted
a
diversity
in
practice,
and
numerous
public
American
and
Canadian
companies
that
used
the
lower
of
cost
or
market
method
for
their
futures
contracts
transactions
all
employed
large
internationally
recognized
accounting
firms.
Based
on
the
diversity
of
practice
at
the
time
and
the
authoritative
literature,
it
was
the
opinion
of
one
expert
that
accounting
based
on
the
lower
of
cost
or
market
method
in
this
case
was
consonant
with
generally
accepted
accounting
principles.
I
accept
this
evidence
and
conclude
that
it
would
have
been
appropriate
for
the
plaintiff
to
choose
either
of
the
accounting
methods
discussed
here
in
calculating
his
taxable
income.
There
was
expert
evidence
before
the
Court
permitting
this
conclusion.
(See
Le
Dain,
J.
in
Century
Insurance
Company
of
Canada
v.
N.V.
Bocimar
S.A.,
supra.)
I
can
see
no
error
in
law,
therefore,
in
the
reasons
expressed
by
the
trial
judge.
It
was
open
to
the
taxpayers
to
utilize
this
method
of
accounting
to
record
this
type
of
activity,
if
it
was
to
their
advantage
to
do
so.
I
also
agree
with
the
trial
judge
that
there
was
no
artificiality
here,
so
as
to
run
afoul
of
section
245
of
the
Income
Tax
Act.
In
conclusion,
then,
I
would
allow
the
appeal
in
relation
to
the
reassessment
concerning
the
Abemayor
Collection,
but
in
all
other
respects
the
appeal
will
be
dismissed.
In
view
of
the
divided
success
on
very
different
issues,
it
appears
appropriate
to
invite
written
representations
as
to
costs
here
and
in
the
Trial
Division.
The
respondent
may
file
written
representation
on
or
before
December
19,
the
appellant
may
file
a
response
on
or
before
January
6,
1992,
and
the
respondent
may
repy,
if
it
is
felt
necessary,
on
or
before
January
13.
Formal
judgment
will
not
issue
until
after
the
costs
issue
is
settled
by
the
Court.
Appeal
allowed
in
part.