CRA finds that payment of the Part XIII tax on a phantom s. 15(2) net benefit arising from an FX fluctuation was not taxable under s. 56(2)

A partnership with Canadian members made a foreign-currency loan to a non-resident sister and then, when it was discovered that this gave rise to Part XIII tax under s. 15(2), the loan was repaid - but without there being a full off-setting deduction under s. 227(6.1) because the Canadian dollar had appreciated in the interim.

In these circumstances, CRA found that the payment by the Partnership of the Part XIII tax on the net benefit did not give rise to a taxable benefit (which would have been subject to Part XIII tax under s. 214(3)(a)) to the non-resident sister.

Neal Armstrong.  Summary of 20 November 2012 Memorandum 2011-0416761I7 under s. 56(2).