Stephen Stuart Ruby

The appellant, a former bank executive, entered into a cash-settled forward contract with a securities dealer shortly before accessing a credit facility secured by the same shares underlying the forward contract.

The appellant characterized losses from the forward contract as income losses on the basis that the contract was speculative, while the Minister reassessed and characterized them as capital losses on the basis that the contract was a hedge of capital shares.

The majority held that the characterization of a derivative contract turns on its purpose, ascertained objectively through linkage analysis, and that the forward contract's nearly perfect neutralization of price fluctuations in the underlying shares, considered alongside the loan and pledge agreements, demonstrated the requisite linkage to constitute a hedge.

The dissent would have restored the trial judge's findings of fact, holding that intent — assessed through both subjective statements and objective manifestations — is necessary to find a hedge, and that the credit facility and securities pledge agreement entered into with a separate entity were irrelevant to the characterization of the forward contract.

Appeal dismissed, Côté J. dissenting.

The applicant and its affiliates carried out a series of transactions in December 2007 designed to realize a tax loss to offset unrealized foreign exchange gains in the same taxation year.

The Canada Revenue Agency disallowed the claimed loss on the basis that section 98(5) of the Income Tax Act applied, rendering the transaction a tax-deferred rollover.

The applicant sought court orders to retroactively alter the transaction to achieve its intended tax purpose, relying on rectification and equitable jurisdiction to relieve against mistakes.

The application judge granted the order, but the Supreme Court's decision in Fairmont Hotels restricted rectification to written agreements.

The Court of Appeal held that the court will not exercise its equitable jurisdiction to retroactively alter corporate transactions to achieve tax objectives, whether characterized as rectification or relief from mistake.

The court also rejected rescission as an available remedy, finding it was not a voluntary disposition but a commercial contract, and that rescission is an all-or-nothing remedy that cannot be used for partial unwinding to achieve a specific tax outcome.