Navigating FCA's Decision on Straddle
Transactions, Income Test, and Penalties
*Thompson Reuters considers the authors "leading tax
experts and litigators". The authors agreed to grant TR
partial rights to this work. This article first appeared in
TR's, Tax Dispute and Resolution Centre.*
In The Queen v. Paletta Estate,
2022 FCA 86, the Federal Court of Appeal held that activity
undertaken to generate tax losses does not constitute a source of
income or loss for tax purposes. The FCA allowed the Minister's
appeal, upheld the gross-negligence penalties, and sent the matter
back to the Minister for reassessment.
Background
The Tax Court of Canada allowed Mr. Pat Paletta's
estate's appeal. The taxpayer took part in a tax plan that used
"straddle transactions" to offset his taxable income
between 2000 and 2007.
