Futures/Forwards/Hedges

Commentary

Where the business of a corporation entails the purchase or sale of a particular commodity (e.g., the sugar purchases of a sugar refiner), gains...

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Cases

MacDonald v. Canada, 2020 SCC 6

The taxpayer had held a significant investment in the common shares of a listed bank (“BNS”) since 1988. In 1997, due to “storm clouds,”...

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Words and Phrases
hedge speculation
Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention intention re forward contract determined on basis of objective linkage to hedged asset rather than testimony as to subjective purpose 335
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss - Hedges cash-settled forward “objectively” was a capital share hedge notwithstanding no matching share sale 542

The Queen v. Macdonald, 2018 FCA 128, aff'd 2020 SCC 6

The taxpayer had held a significant investment in the common shares of Bank of Nova Scotia (“BNS”) since 1988. In 1997, due to “storm...

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Words and Phrases
hedge
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss - Hedges cash-settled forward was hedge of share bloc irrespective of speculative intention 297

Tamas v. The Queen, 81 DTC 5150, [1981] CTC 220 (FCTD)

Losses sustained by the taxpayer radiologist from the purchase and sale of silver futures were fully deductible. Dubé J stated (at p....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss silver futures trading on income account 118

Atlantic Sugar Refineries v. Minister of National Revenue, 49 DTC 602, [1949] S.C.R. 706

The taxpayer was in the business of purchasing, refining and selling sugar. It did not normally engage in hedging transactions. However, on the...

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See Also

MacDonald v. The Queen, 2017 TCC 157, rev'd 2018 FCA 128, which was aff'd in turn by 2020 SCC 6

The taxpayer had held a significant investment in the common shares of Bank of Nova Scotia (“BNS”) since 1988. In 1997, due to “storm...

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Words and Phrases
hedge
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss cash-settled forward sale of shares not sufficiently linked to underlying shareholding to be a hedge 199

Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 DTC 6532, 2006 SCC 20, [2006] 1 S.C.R. 715

The taxpayer sold its gold production to bullion dealers at the spot price but also, in order to manage the risk associated with fluctuations in...

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Words and Phrases
hedging
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Bulletins, etc. shifting CRA position could not be relied upon except to evidence ambiguity 79
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 120
Tax Topics - Statutory Interpretation - Resolving Ambiguity residual presumption in favour of the taxpayer 133
Tax Topics - Income Tax Regulations - Regulation 1204 - Subsection 1204(1) - Paragraph 1204(1)(b) cash-settled derivatives had the effect of fixing mine production] 453
Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation addition of regulation did not significantly expand scope of tax 264

Friesen v. The Queen, 95 DTC 492, [1995] 1 CTC 2560 (TCC)

The taxpayer, who did not have any business enterprises relating to the commodities in question, traded 66 times in commodities contracts (both...

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Administrative Policy

29 July 2004 Internal T.I. 2003-0023761I7 F - Contrat de SWAP d'équité

In connection with its monetization of the shares of a corporation, the taxpayer transferred the shares of that corporation to a Newco...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss loss on equity swap entered into in monetization transaction was on capital account 164
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition termination of equity swap contract entailed the disposition of property 67
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) swap termination payment could be deducted if it was incurred to make the disposition (the swap payment termination) 194

13 February 2020 External T.I. 2019-0826051E5 - Income from a securities trading business

Would the trading of securities, such as speculative futures and options contracts on commodities, by a corporation be on income or capital...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Specified Investment Business a CCPC can generate active business income from its trading in securities 211

6 October 2017 APFF Financial Strategies and Instruments Roundtable Q. 16, 2017-0705181C6 F - Hedging & George Weston Limited

After noting that “the CRA has already stated that it accepts the decision … in George Weston,” CRA noted, however, that:

The approach taken...

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21 October 2015 Internal T.I. 2015-0592781I7 - treatment of bond locks

Canco, which was wholly-owned by its Canadian Parent, entered into “Dividend Bond Locks” and “Interest Bond Locks” (collectively, the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Timing losses on interest or dividend rate hedges could be amortized/any gains immediately includible 235

5 March 2014 Internal T.I. 2013-0500891I7 - Hedging

Parent hedged a U.S.-dollar borrowing by entering into foreign currency forward contracts. In order to utilize capital loss carryforwards of a...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1.1) s. 85(1) roll of FX forward to sub 110
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Foreign Exchange s. 85(1) roll of FX forward to sub 195

8 October 2010 CTF Roundtable, 2013-0507191C6 - Monetization of Securities - 2010 CTF Conference

Respecting arrangments for the monetization of shares of public corportions, CRA stated:

Ruling F in document 2007-0246461R3 provides that the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(b) payment under an equity swap not a capital loss because no disposition (and on income account) 187

14 January 2010 Internal T.I. 2009-0323991I7 F - Débenture échangeable et opération à terme

A predecessor of the taxpayer monetized its shares of Corporation 2 by entering into a forward sale with a third party (the “Purchaser”) and...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(f) only ½ deduction under s. 20(1)(f)(ii) for premium paid on cash-settling an exchangeable debenture under pre-2010 policy, and no s. 20(1)(f) deduction for cash settlement of forward 337
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) CRA position of applying changes in published policy prospectively 105
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) full deduction of amounts only partly, or not, deductible under s. 20(1)(f) would have caught the eye of a wise and prudent person reviewing the return 134

2007 Ruling 2007-0246461R3 F - Monétisation d'actions d'une société publique

Proposed transactions

Holdco A and Holdco X (which are holding companies of the CEO and executive vice-president, respectively, of ACO, which is a...

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12 January 2005 External T.I. 2004-0101161E5 - Trading in stock index futures

Would trading by an individual, who makes trades every day and where they constitute the major source of income, in stock index futures which are...

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4 August 1994 External T.I. 9414045 - FINANCIAL FUTURES - CAPITAL OR INCOME ACCOUNT

Would trading in futures by a mutual fund give rise to capital gains, rather than ordinary income? CRA responded:

Although Interpretation Bulletin...

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25 May 1994 External T.I. 9404215 - GAINS OR LOSSES ON FUTURES AND SHARES

A seat owner-member of a Futures Exchange whose business activity consisted of trading in futures would be required to report his transactions on...

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31 March 1994 Administrative Letter 9337012 - MUTUAL FUND TRUST INVESTING IN FUTURES - INCOME ACCOUNT

A mutual fund that invests primarily in derivatives, futures and like investments will realize resulting gains and losses on income account....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) investing undertaking can be on income account 40
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) commodity futures are investing but may be on income account 59

Articles

Nigel P.J. Johnston, Roger E. Taylor, "Taxation of Hedges and Derivatives: Recent Developments", 2016 Conference Report (Canadian Tax Foundation), 13:1-36

Potential treatment of a dynamic hedge as on capital account (pp. 13:11-12)

A static hedge is one that does not have to be rebalanced as the price...

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Raj Juneja, "Taxation of equity derivatives", 2015 CTF Annual Conference paper

Potential capital treatment of equity derivatives (p.17:18-19)

[E]quity derivatives in many cases are not entered into to hedge exposure to other...

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