Chad – Federal Court of Appeal finds that a trading activity was not in pursuit of profit and, thus, not a source of income where its purpose was to generate a loss

The taxpayer incurred a loss in excess of $22 million in 2011 from trading in foreign exchange forward contracts using a straddle-trading strategy and realized a nearly identical gain in 2012 from the straddles. Monaghan JA confirmed the finding of the Tax Court that the 2011 loss was not a deduction in computing the taxpayer’s income because, in pursuing his foreign-exchange trading activities, the taxpayer’s intention was to incur a loss so that his trading was not a source of income.

She noted that, in Stewart and Walls, “the Supreme Court expressly equates ‘an activity undertaken ‘in pursuit of profit’ with ‘source of income’.’” After referring to Paletta Estate, she stated that in that case “by carefully reading and analyzing Stewart and Walls decisions … this Court demonstrated that those decisions preclude an activity pursued with no purpose other than to incur a loss from being considered a source of income.” She then stated:

To put it in the language of the Supreme Court, in the absence of a personal element we might ask “[f]or what purpose would the taxpayer have spent his time and money in this activity if not for profit?”: Stewart at para. 62. In most cases the obvious answer will be “for no other purpose”, therefore no further inquiry will be warranted, and “the appellant [will satisfy] the test for source of income”: Stewart at para. 62. However, in some (although I expect not many) cases, like Moloney, Paletta Estate and here, the evidence will lead the Tax Court to respond to that question, “for the resulting loss”. In those cases, the taxpayer will not satisfy the test for a source of income.

Neal Armstrong. Summary of Chad v. Canada, 2026 FCA 84 under s. 3(a) – business.