Canada: Mark-to-market available to non-financial institutions

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Mark-to-market available to non-financial institutions

diep.jpg

Nancy Diep

In a recent decision by the Federal Court of Appeal (FCA), it was confirmed that the adoption of mark-to-market valuation is not restricted to financial institutions for the purposes of computing income for Canadian tax purposes.

The case involved Kruger Inc. (the taxpayer), a Canadian-based company that carries on a paper products business, with most of its production destined for the US. In order to manage its foreign exchange exposure, the taxpayer started in the 1980s to purchase and sell foreign currency option contracts. By the mid 1990s, the taxpayer had a team of specialised derivatives traders that managed the options and other hedges. In effect, the company had become a speculative trader in derivatives as a separate business and, in reporting its profit for tax purposes, it adopted mark-to-market accounting for its trading business.

The Tax Court of Canada found that taxpayers were subject to an overarching principle of taxation that, unless the Income Tax Act provided otherwise, profits and losses could only be recognised when "realised".

In overturning the lower court decision, the FCA resorted to first principles in posing the question of whether the taxpayer's method of accounting provided an accurate picture of its income for the year and found that there is nothing at law that excludes mark-to-market accounting if it achieves this objective. Once a taxpayer demonstrates that mark-to-market accounting provides this accurate picture, the onus is on the Crown (government) to demonstrate an alternative method that provides a "more accurate" picture, which it failed to do here.

As a final interesting matter, the FCA also addressed the question of whether the option contracts qualified as inventory. In the court's view, the contracts were not property held for sale, a key requirement in the meaning of inventory, and so constituted a separate category of property that is not capital property and not inventory, the impact of which still must be accounted for by a taxpayer.

Nancy Diep (nancy.diep@blakes.com), Calgary

Blake, Cassels & Graydon

Tel: +1 403 260 9779

Website: www.blakes.com

more across site & shared bottom lb ros

More from across our site

Brazil’s shift to a nationwide consumption tax is more than conceptual; it fundamentally transforms municipal revenue, enforcement, and administrative disputes
While some advisers praised the ruling’s definition of a ‘voucher’ for VAT purposes, a UK partner said the case left unanswered questions
While pillar two has been enacted on paper in Brazil, companies are encountering a range of practical compliance issues, ITR has heard
Moore, founding partner of the Chicago tax boutique which bears her name, shares her career wisdom for ITR’s new Women in Tax interview series
But partners at the firm admit that jumping ship to the US would not be as easy as some believe
Governments are rewriting tax policy for the AI era, deploying digital taxes, tailored incentives and algorithmic enforcement that redefine where value is created
Wingrove will succeed Bill Thomas, who has served in the role since 2017; in other news, Andersen unveiled a sharp increase in revenues for 2025
Partners are divided on Italy vs PDM D’s analytical depth, evidentiary standards, and what the judgment signals for future intra-group financing cases
As GCCs increasingly become strategic hubs, multinationals face heightened risks around permanent establishment and place of effective management
While all options presented ‘drawbacks’, European Commission tax leader Wopke Hoekstra said the controversial US carve-out deal has ‘many benefits’
Gift this article