Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
HEDGING GAINS AND LOSSES/ RESOURCE ALLOWANCE
QUESTION 41
The Echo Bay case established that commodity hedging gains and losses are to be included in the computation of resource profits. Revenue Canada has apparently acknowledged that such gains and losses will be treated as resource profits or losses for resource allowance purposes, provided that the hedge is non-speculative. Would Revenue Canada please expand on what is meant by "non-speculative" in this context? What is Revenue Canada's position with respect to gains and losses on interest and currency hedges and swaps - are these gains and losses also included in the computation of resource profits?
DEPARTMENT'S POSITION
The Department commented at the roundtable session of the 1992 Canadian Tax Foundation Conference (Q. 17) as follows:
In light of the Echo Bay decision, the Department's assessing practice will be that hedging gains and losses from non- speculative forward sales contracts with respect to a hedged amount of production will be included in the computation of resource profits for the taxation year in which production of the hedged amount takes place to the extent that the hedging gain or loss corresponds to actual production for that taxation year.
A forward sales contract transaction in respect of a resource company's own production is generally considered as a "non-speculative" transaction.
The issue of whether gains and losses on interest and currency hedges and swaps would be included in the computation of resource profits is being reviewed by the Department, thus any comment on this issue would be inappropriate at this time.
CPTS June 17, 1993
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