Dynamic hedging might be on capital account

A dynamic hedge, for example, where a taxpayer has written a call option on a number of shares of X Co, involves the taxpayer continually buying or selling shares of X Co in predictable numbers and at predictable times based on changes over time in the market price of the X Co shares.

[B]ased on George Weston a compelling argument can be made that gains and losses resulting from a dynamic hedging strategy to hedge a capital asset should also be on capital account despite the fact that there may be numerous transactions. … [T]he relevant issue is the character of the risk that is being hedged (depreciation in value of a foreign-currency-denominated capital asset), not the number of transactions.

The derivative forward arrangement definition was amended in response to concerns that it could apply to conventional currency forwards. However, there are concerns that the new wording does not adequately deal with currency forwards that hedge foreign-currency denominated borrowings (as contrasted to investments).

Under hedge accounting, recognition of income or loss on the hedge of a trading-account item can be deferred until the year of recognition of loss or income on the underlying hedged item. A company,

having chosen hedge accounting, could argue on the basis of Kruger that hedge accounting provided a more accurate picture of income; it matched the results of the hedged item with the results of the hedging item, thus producing a better match of profit and related loss than the realization principle.

Neal Armstrong. Summaries of Nigel P.J. Johnston and Roger E. Taylor, "Taxation of Hedges and Derivatives: Recent Developments," 2016 Conference Report (Canadian Tax Foundation), 13:1-36 under s. 9 - timing, s. 9 – capital gain v. profit – futures/forwards/hedges, and s. 248(1) – derivative forward agreement – s. (b)(iii).