Barrick Gold – Tax Court of Canada finds that gains from closing out gold hedges on the sale of a mine were included in mining production profits

The definition of “gross resource profits” included income from “the production and processing in Canada of…ore.” Barrick Gold had entered into forward contracts to lock in the price of anticipated gold production at its Doyon Mine but then, shortly before completing a sale of the Mine to Cambior, closed out its forwards at a gain. Paris J found that the forwards had a sufficient connection with Barrick’s Doyon mining operation, given that they were entered into in the course of that business to hedge against price fluctuations respecting the production, for the hedging gains to be income from that production.

Although the resource allowance that was at stake in this case has since disappeared, this case is consistent with the proposition that the character of a gain from settling a contract usually is determined based on the relevant intention and circumstances surrounding the entering into of the contract rather than those prevailing at the time of realization of the gain. (Among other bold arguments, the Crown had submitted that “the Forward Contracts ceased to be hedges prior to their closeout because as of [the date of the letter of intent for the sale to Cambior] the Appellant no longer anticipated any future gold production from the Doyon Mine.”)

Neal Armstrong. Summaries of Barrick Gold Corp. v. The Queen, 2017 TCC 18 under Reg. 1204(1)(b)(ii) and General Concepts – Accounting Principles.