http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/109840/index.do 
Kruger Incorporated v. The Queen (May 26, 2015 – 2015 TCC 119, Rip J.).
Précis: Because of its exposure to currency risk in multiple jurisdictions Kruger Incorporated (“Kruger”) started an aggressive risk management program using foreign exchange options. The program expanded to the point that they had a foreign exchange desk in house similar to that found in mainstream investment houses. Kruger started to mark its foreign exchange contracts to market, in the same manner as financial institutions. CRA denied Kruger’s mark to market positions and Kruger appealed to the Tax Court. The Tax Court held that notwithstanding industry and accounting opinions, the basic principle for the purposes of the
Income Tax Act (the “Act”) was the “realization principle”, i.e., gains and losses were not recognized until they were in fact realized. In the case of foreign exchange options held as inventory however, section 10 of the Act permitted Kruger to value these at year end. This position extended to options acquired by Kruger, but not options issued by it since the latter were liabilities of Kruger and not “property” for the purposes of the Act. The appeal was allowed to that extent. The parties were given 30 days (or such longer period as the Court might approve) to make submissions as to costs.
Decision: Justice Rip, in a bit of a novel twist, provided a concise and helpful Executive Summary of his decision:
Executive Summary
The main issue in this appeal is whether, in computing income for the year, Kruger can mark to market foreign exchange option contracts at the end of its fiscal year. The Crown’s position is that foreign exchange contracts are to be valued only when realized. Expert evidence agree that for financial reporting purposes, mark to market is the appropriate method of valuing such options. The Income Tax Act ("ITA" or "Act") requires financial institutions, as defined, to mark to market what it defines as "mark to market property". Foreign exchange option contracts are not included in the definition of such property (section 142.2 of the ITA).
Nevertheless, for ease of administration of the ITA, the Canada Revenue Agency ("CRA") has taken upon itself to permit financial institutions to mark to market such option contracts. It also permits some regulated businesses that are not defined as "financial institutions" to mark to market property.
Kruger is not a financial institution and does not carry on a regulated business. However, it is one of the larger participants in the Canadian market. It values its foreign exchange option contracts on a mark to market basis for both tax and financial reporting. The mark to market values used by Kruger were the values it adopted from its co-contractors, various banks, the values of which may vary from bank to bank. The CRA did not allow the appellant to mark to market value its foreign exchange option contracts as at the end of its 1998 taxation year.
A taxpayer is to value its property on a consistent basis. Mark to market valuation may create income in one year and a loss in another year. A taxpayer is to include an amount in income for the year or deduct an amount in computing income for the year only if required or permitted by the ITA. Mark to market valuation should be applied only in the limited circumstances where it is sanctioned by the ITA, by section 142.2 and section 1801 of the Income Tax Regulations ("ITR").
Kruger’s alternative argument was that it was in the business of both writing and purchasing foreign exchange option contracts and that the contracts were inventory. Kruger did carry on such a business. However, the foreign exchange option contracts it wrote were liabilities and not inventory. The contracts it purchased were inventory and may be valued accordingly.
The reasons for judgment do not provide any information on what proportion of Kruger’s claim would be met by Justice Rip’s conclusion that foreign exchange contracts purchased by it could be valued as inventory. Nevertheless one would think it would be a substantial victory. The decision that foreign exchange contracts issued by Kruger were not inventory as they are liabilities not property is likely to be the subject of considerable debate.