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 bid to seek US-style exemptions from pillar two is ‘highly advantageous’ for multinationals, ITR has also heard
India is signalling flexibility on expat taxation to attract foreign expertise, though employers will need to navigate disclosure, treaty and scope uncertainties
Brazil is trying to follow in the US’s footsteps and secure its own 'qualified side-by-side status', ITR understands
The surge in probes comes as the UK tax authority seeks to close a VAT gap of £11.4bn from last year, Pinsent Masons’ research has suggested
ITR’s survey data reveals widespread client disappointment with firms’ use of technology but our upcoming AI in Tax event offers advisers a chance to flip the script
Firms announced key tax partner hires across the US and UK, while fintech and software providers revealed board appointments and new tools for multinational tax teams
It continues a prolific spree of investment for the firm, after it launched in Indonesia, Thailand, Saudi Arabia and Japan in 2025
Booming APA statistics reflect the growing credibility of India’s TP framework and the country’s shift toward a tax certainty approach, ITR has heard
Partners at both firms have voted in favour of the tie-up, which marks ‘the largest law firm merger in history’
The latest edition of Taxing Times with ITR covers all the controversy from a dramatic period for the carve-out deal, and also dissects the big four's AI strategies
Gift this article