22 December 1999 Internal T.I. 9927117 - HEDGING, RESOURCE ALLOWANCE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: commodity hedge, resource allowance

Position: Question of fact whether a hedge, and must examine capacity and intent to produce product at time when forward sal is entered.

Reasons: Echo Bay reasons for judgment

December 22, 1999

Toronto Centre Tax Services Office	Resource Industries Section
			Denise Dalphy
	Attention:  Steve Wahl	(613) 957-9231

			992711

XXXXXXXXXX - Hedging or Speculative Transactions

This is in reply to your letter of September 24, 1999 and is further to our letter dated June 24, 1999 concerning the impact of the case of Echo Bay Mines Ltd. (92 DTC 6437) on certain transactions of XXXXXXXXXX during the years XXXXXXXXXX.

As we stated in our earlier letter, classifying whether transactions are a hedge or are speculative requires factual determinations to be made. However, this must be considered in conjunction with the concept of stare decisis which requires similar problems to be resolved in similar ways. This common law concept promotes stability and predictability in society and it reinforces the principle that all people are treated the same in similar circumstances. Of course, in order to determine whether a current situation is similar to one previously considered by a court, both the facts of the situations and the relevant legal concepts must be considered. While the common law system recognizes changes in society and therefore exceptions may be made in the case law over time, in the situation which you have requested us to consider, there are no legislative amendments that would cause such a change, nor do we consider the facts in this situation to be so significantly different from those in Echo Bay such that we could deviate from the ratio in Echo Bay (to the extent that it deals with hedging of its own production by a resource company).

While, as we have indicated to you, we certainly are not as familiar with the facts in the XXXXXXXXXX situation as you are, we are not aware of any substantial difference in the facts between this case and Echo Bay that would permit us to change our views.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, he can be provided with the LAD version or he may request a copy severed using Privacy Act criteria which does not remove the client's identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

If we can be of any further assistance or if you wish to discuss this matter further, please contact the writer.

John Chan, Manager
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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