The taxpayer traded foreign currency options as a separate business from its pulp and paper business, 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 (although it amortized option premiums into income over the terms of the contracts). As there was no market for European style options, the taxpayer adhered to each counterparty bank's valuation of the contract (which often differed from other banks,' as their valuation models differed. For the year in question, this resulted in the taxpayer claiming a loss approximately $72 million greater than if it had reported on the basis of losses (or gains) actually realized.
In finding that the taxpayer instead should have used the realization method, Rip J stated (at paras. 114, 115):
The realization principle is basic to Canadian tax law. It provides certainty of a gain or loss.…
[D]erivative financial instruments are not "mark to market" property as defined by section 142.2. Yet the CRA has accommodated banks and others to value such contracts mark to market. … At the end of the day, however, it falls to Parliament to enact the law, the courts to interpret the law and the CRA to enforce the law… .
He also noted (at para. 116) that the inconsistent results produced by the mark-to-model approaches of the different banks (adopted by the taxpayer) shook his confidence in the use of those values by the taxpayer.
He proceeded to accept 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. However, the contracts which the taxpayer instead had written were liabilities rather than property, and thus not inventory.