Capital property generally maintains its character when transferred on a s. 85 roll

CRA found that foreign currency forward contracts were entered into by the taxpayer on capital account notwithstanding that they were not put into place to hedge its FX borrowing until a few years after the borrowing. In addition, as it is CRA policy that property maintains its capital character when transferred on a s. 85 rollover to a controlled subsidiary or a sister, the taxpayer was able to utilize capital loss carryforwards of a subsidiary by subsequently transferring the forwards on a s. 85 rollover basis to the subsidiary, with the forwards being settled in the subsidiary’s hands.

Neal Armstrong. Summary of 5 March 2014 Memo 2013-0500891I7 under s. 9 – capital gain v. profit – foreign exchange, and s. 85(1.1).