The taxpayer, who was the general partner of a firm of commodity brokers, entered into spread positions in gold futures contracts, and in the same taxation year closed out the losing legs on his spread positions (while entering into further contracts to maintain his hedged position) but deferred closing out the remaining contracts until the subsequent taxation year. The Crown had failed to demonstrate that it was inappropriate for the taxpayer to report losses when they were actually incurred (on closing out the losing legs) and to not report gains until they are actually realized (in the subsequent year). In particular, the Court was not satisfied that the "marked to market" accounting method proposed by the Crown could describe income for income tax purposes, nor were they satisfied that a margin account balance is the appropriate measure of realized income for tax purposes.
Given that the method followed by the taxpayer did not entail the deduction of unincurred losses, it was not necessary to consider the income tax validity of the "lower of cost or market" method in this case.