Canadian Lawyer

May 2020

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30 LEGAL REPORT A TAXPAYER'S forward derivative contract was a hedge, not speculative, and so the taxpayer's losses were capital and not income losses, the Supreme Court of Canada ruled in March in a decision that is in "the national public interest," says one tax law expert. "The heart of the issue, and the principle that will have enduring value and which will determine future conduct and influence the bodies . . . is the fact that you have to deter- mine intention in an objective manner based on the facts and not simply ex post declaration by the taxpayer" as to whether the taxpayer was speculating or hedging in a particular TAX SCC confirms intention as central test Tax ruling on forward derivative contract seen as less favourable to business community but avoids test based entirely on foresight of risk, writes Elizabeth Raymer derivatives contract, says Vern Krishna, a professor of law at the University of Ottawa and of counsel at TaxChambers LLP. Krishna praised the judgment as "very clear [and] a very thorough exposition of the law." "Any decision of the Supreme Court in the tax area is going to have a profound ripple affect across the economy," both for commer- cial and individual taxpayers, says Toronto tax litigator William Innes. That said, he notes "a subtle sea change in the way the Supreme Court is approaching business-type tax cases." Under former Chief Justice Beverley McLachlin, the Supreme Court main- tained an "even keel" regarding business tax deductions, Innes says. "There was a careful balancing of interests, assisted by the pres- ence on the court of Mr. Justice [Marshall] Rothstein; he was a real tax expert." The absence of McLachlin and Rothstein on the bench "tells in this case," says Innes, predicting the decision "will engender a broad level of uncertainty in the business/ investment community." In MacDonald v. Canada, shares that the appellant James MacDonald had put up as security against a large bank loan were "The heart of the issue [is] that you have to determine intention . . . based on the facts and not simply ex post declaration by the taxpayer." Vern Krishna, TaxChambers LLP

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