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The issue before the SCC in MacDonald v. Canada, 2020 SCC 6 was whether the losses realized by the taxpayer on a forward contract should be treated on account of income or capital. In an 8-1 decision, the majority engaged in this analysis by first determining whether the forward contract constituted a hedge or if it was a speculative transaction. This involved a consideration of the derivative's purpose by examining any linkage between the forward contract and the underlying asset (the shares), as well as consideration of the commercial context surrounding the forward contract. Ultimately, the SCC held that the purpose of the forward contract was to hedge against the market price fluctuation risk of the shares and therefore characterized the taxpayer's losses as capital losses.

Tax Foresight correctly predicted that this transaction constituted a capital loss in Canada. The prediction was based on several factors, including: 

  • The losses at issue were from a forward contract, 

  • The losses were intended to hedge the taxpayer’s position with regard to his securities, and

  • The length of time the taxpayer intended or expected to hold the securities.

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