The taxpayer traded foreign currency options, with its principal option activity being the writing of European-style puts and calls with banks as the counterparties. The taxpayer reported gains and losses on these options essentially on a mark-to-market basis.
Rip J agreed with the Minister that, in general, the realization method should have been used instead of mark to market, as "the realization principle is basic to Canadian law" (para. 114). However, he accepted the taxpayer's alternative argument that the options contracts, if purchased by it, were held as inventory, and thereby could be valued under s. 10 (noting, at paras. 121-22 that, contrary to GAAP, inventory for ITA purposes can include intangible property and, at para. 124 that "there is no requirement that property must be held for sale to qualify as inventory.") However, the contracts which the taxpayer instead had written were liabilities rather than property, and thus not inventory (stating, at para. 130 that "until maturity or settlement, the writer is liable to the purchaser.") Accordingly, the taxpayer's appeal was allowed only to give effect to the losses claimed on the contracts it had purchased.
See summary under s. 9 –timing.