Précis: This case turned on the treatment of cash settlement payments of $9,936,149 made by Mr. MacDonald on a derivative contract in his 2004-2007 taxation years. Mr. MacDonald treated them as business losses on the basis that he was speculating with the derivative contract; CRA assessed them as capital losses on a hedge of Bank of Nova Scotia shares owned by him. The Tax Court allowed Mr. MacDonald’s appeal and CRA appealed to the Federal Court of Appeal. The Court of Appeal allowed CRA’s appeal, with costs, holding that the Tax Court had erred in failing to follow the recent Tax Court decision in George Weston Limited v. The Queen, 2015 TCC 42 and that Mr. MacDonald’s intention was not relevant in determining whether the derivative contract was a hedge: “ Based on the case law, an intention to hedge is not a condition precedent for hedging. … ”.
The Supreme Court of Canada by a 8 to 1 decision dismissed Mr. MacDonald’s appeal: “ … this arrangement reveals the necessary linkage between Mr. MacDonald’s Bank of Nova Scotia shares and the forward contract to indicate a hedging purpose.” [para.  per Abella J.S.C.C.].
Côté, J.S.C.C. in dissent would have allowed the appeal: “On balance, while some of the objective economic indicators are consistent with an intent to hedge, there are also objective circumstances that suggest an intent to speculate, and I am not persuaded that the trial judge’s findings of fact should be overturned on the application of a deferential standard of review. [para. 86].”
MacDonald v. R. – SCC: Intention to hedge inferred from facts by SCC – or did it abandon “intention” altogether?READ MORE »