CRA rules that s. 261(21) does not apply to FX hedging with NR affiliates who are not subject to Canadian tax

On its face, s. 261(21) denies losses incurred, by a taxpayer who has made a functional currency election, in transactions (in this case, FX hedging contracts) with related persons who do not have the same tax-reporting currency at any time while those losses accrued. However, CRA has ruled that it will not apply s. 261(21) where the related (non-resident) affiliates in question "are not subject to tax under the Act on any amount included in their respective Canadian tax results."

Neal Armstrong. Summary of 2015 Ruling 2014-0561001R3 under s. 261(21).