Canada: Forward foreign-exchange straddle plan held “not a sham”

Canada: Forward foreign-exchange straddle plan

The Tax Court of Canada (TCC) issued a judgment allowing a taxpayer’s pre-2017 non-capital losses from forward foreign-exchange straddle trading.


In Paletta Estate v. The Queen (2021 TCC 11), the TCC found that the taxpayer's forward foreign exchange straddle activities were not a sham, and constituted a source of income from a commercial activity. As a result, the TCC reversed the Canada Revenue Agency (CRA) reassessments and allowed the taxpayer's non-capital losses from these transactions over an eight-year period from 2000 to 2007.

The decision noted the significance of the Supreme Court of Canada's decision in Friedberg v. The Queen ([1993] 4 S.C.R. 285), in which the high court allowed the taxpayer's losses in what was essentially the same tax plan to realize losses in one tax year and defer the related gain until the subsequent tax year.

Although the TCC acknowledged that legislative amendments in 2017 may override the Friedberg decision, the TCC noted that these amendments did not apply retroactively or retrospectively and did not allow the CRA to reassess pre-2017 taxation years ignoring Friedberg.

Read a March 2021 report prepared by the KPMG member firm in Canada

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