MacDonald v. Her Majesty the Queen (March 13, 2020 – 2020 SCC 6, Wagner C.J.C., Richard; Abella (Author), Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas (JJ.S.C.C.); Côté, Suzanne (J.S.C.C.) (Dissent).
Précis: This case turned on the treatment of cash settlement payments of $9,936,149 made by Mr. MacDonald on a derivative contract in his 2004-2007 taxation years. Mr. MacDonald treated them as business losses on the basis that he was speculating with the derivative contract; CRA assessed them as capital losses on a hedge of Bank of Nova Scotia shares owned by him. The Tax Court allowed Mr. MacDonald’s appeal and CRA appealed to the Federal Court of Appeal. The Court of Appeal allowed CRA’s appeal, with costs, holding that the Tax Court had erred in failing to follow the recent Tax Court decision in George Weston Limited v. The Queen, 2015 TCC 42 and that Mr. MacDonald’s intention was not relevant in determining whether the derivative contract was a hedge: “ Based on the case law, an intention to hedge is not a condition precedent for hedging. … ”.
The Supreme Court of Canada by a 8 to 1 decision dismissed Mr. MacDonald’s appeal: “ … this arrangement reveals the necessary linkage between Mr. MacDonald’s Bank of Nova Scotia shares and the forward contract to indicate a hedging purpose.” [para.  per Abella J.S.C.C.].
Côté, J.S.C.C. in dissent would have allowed the appeal: “On balance, while some of the objective economic indicators are consistent with an intent to hedge, there are also objective circumstances that suggest an intent to speculate, and I am not persuaded that the trial judge’s findings of fact should be overturned on the application of a deferential standard of review. [para. 86].”
Decision: This case is bound to be fodder for seminars, articles and exam questions for years to come so I do not propose to expound any lengthy analysis. Abella J.S.C. wrote a modestly lengthy majority opinion which claimed to stay true to the historical test of “intention”, rather than abandon intention altogether as had the Federal Court of Appeal decision:
 In Shell Canada, McLachlin J. cautioned that “the economic realities” of a situation cannot be used to “recharacterize a taxpayer’s bona fide legal relationships” (para. 39). This does not mean that contextual factors outside the four corners of the derivative contract will never be relevant in ascertaining its purpose. McLachlin J.’s statement was made in the context of this Court rejecting an argument that two related transactions between different parties should effectively be treated as a single collective transaction for the purpose of tax characterization. This is very different from considering multiple related agreements to help determine why a particular agreement was entered into.
 When assessing whether a derivative contract is a hedge or speculation, the relationship between the derivative contract and transactions or assets outside of the derivative contract will very often be relevant. By definition, a hedging derivative contract is aimed at reducing the risk associated with some asset, liability or transaction. In this case, the loan and pledge agreements are part of the context relevant to ascertaining the purpose of the forward contract. Considering these agreements will in no way recharacterize Mr. MacDonald’s bona fide legal relationships.
 As Noël C.J. observed, the combined effect of the forward contract, the loan agreement and the pledge agreement allowed for credit backed by collateral that was free from market fluctuation risk. The loan and pledge agreements gave Mr. MacDonald access to a large credit facility but required him to maintain the forward contract and to pledge, as collateral, Bank of Nova Scotia shares and all Cash Settlement Payments owed to him pursuant to the forward contract. The credit available to him could not exceed 95% of the value of his pledged Bank of Nova Scotia shares. The shares pledged as collateral matched the shares contemplated by the forward contract. As the number of shares covered by the forward contract decreased due to settlement, the same number of shares were released from being collateral under the loan and pledge agreements.
 From the perspective of TD Bank, this meant that the value of the collateral was perfectly protected from market fluctuations: if the price of Bank of Nova Scotia shares increased, the value of Mr. MacDonald’s pledged shares would increase proportionally; if the price decreased, Mr. MacDonald would be entitled to an offsetting Cash Settlement Payment which would automatically be pledged as collateral. This arrangement allowed Mr. MacDonald to gain access to a large credit facility on attractive terms and allowed TD Bank to provide the credit facility with the guarantee of protected collateral.
 In my view, this arrangement reveals the necessary linkage between Mr. MacDonald’s Bank of Nova Scotia shares and the forward contract to indicate a hedging purpose. The fact that Mr. MacDonald did not sell his Bank of Nova Scotia shares immediately to offset his losses under the forward contract does not sever this connection. Although the loan and pledge agreements form part of the context in this case and shed light on the purpose of the forward contract as a hedge, the forward contract, considered independently, perfectly sheltered the large bulk of Mr. MacDonald’s Bank of Nova Scotia shares from market price fluctuations. A good argument can be made, therefore, that even without the loan agreement, the contract was still a hedge.
 Mr. MacDonald’s ex-post facto testimony regarding his intentions cannot overwhelm the manifestations of a different purpose objectively ascertainable from the record.
 The Cash Settlement Payments arising from the forward contract derive their income tax treatment from the underlying Bank of Nova Scotia shares, which the parties agree were held by Mr. MacDonald on account of capital. When considered in its full and proper context, it is clear that the purpose of the forward contract was to hedge against market price fluctuations that Mr. MacDonald’s Bank of Nova Scotia shares were exposed to.
Justice Côté, the lone hold-out, authored what might be termed a mildly censorious dissent which in essence held that the majority had paid lip service to the intention rule but in fact abandoned it and, in the course of doing so, overruled a finding of fact by the Tax Court Judge in an impermissible manner.
Neither Justice Abella nor Justice Côté are known to have any particular affinity for tax. With the departure of Chief Justice McLachlin and Justice Rothstein the Supreme Court is no longer a fertile ground for the evolution of tax jurisprudence, at least for the time being. Whether this decision will come to be seen as a bellwether or a cul de sac remains to be seen. Lawyers in both the academic and practising tax bars will undoubtedly make a meal of the question for several years to come. Clients, particularly those involved in the securities industry, will likely lose at least a bit of sleep over the issue.