Korfage – Tax Court of Canada notes that CRA has the discretion to use an average annual exchange rate in translating monthly U.S.-dollar amounts received

A Canadian-resident recipient of pension payments from a U.S. pension plan was entitled under Art. XVIII, para. 1 of the Treaty to deduct from his Canadian income the amount of the pension payments which he would have been entitled to exclude from his U.S. taxable income were he a U.S. resident. He was unsuccessful before Lamarre ACJ with an argument that his deduction from his 2010 pension income should use the higher Cdn/U.S. exchange rate applicable when his pension entitlement was crystallized on his retirement in 2000, rather than the 2010 FX rates. She found that the exempt amount arose each month under Code s. 72(b)(1) (based on a straight-line amortization of the U.S.-dollar cost of his pension investment) when the pension payments were received by him, so that those were the stipulated translation times under ITA s. 261(2).

In fact, CRA used the average exchange rate for 2010 for all the 2010 pension amounts, as to which she noted that “the Minister has discretion in the application of an appropriate exchange rate.”

Neal Armstrong. Summary of Korfage v. The Queen, 2016 TCC 69 under s. 261(2).