29 July 2019 Finance Comfort Letter respecting Functional currency tax reporting - currency of Japan

XXXXX

Dear XXXXX

Functional currency tax reporting - currency of Japan

I am writing in response to your correspondence and discussions with the Tax Legislation Division concerning a request to amend the functional currency tax reporting rules in section 261 of Income Tax Act (the “Act”) to allow a corporation resident in Canada to elect to compute its Canadian tax results using the currency of Japan (i.e., the yen). Specifically, you are asking for an expansion of the definition “qualifying currency” in subsection 261(1) of the Act such that it includes the Japanese yen.

You advise that your company has recently established operations in Japan and that financing for that operation is being raised in Japanese yen by a Canadian-resident corporation (Finco) that makes investments in Japanese resident subsidiary corporations. You further advise that the books and records of Finco are maintained in Japanese yen and that your accountants have advised you that the accounting functional currency of Finco is the Japanese yen.

You note that, currently, the currencies of only the United States, the United Kingdom, the European Union and Australia are listed as “qualifying currencies” for the purposes of the functional currency tax reporting rules. You submit that, given the significance of the Japanese economy to Canada, it would be appropriate for Canadian corporations to have the ability to elect to determine their Canadian tax results in Japanese yen.

Our Comments

We agree that it would be appropriate to permit taxpayers to elect to determine their Canadian tax results in Japanese yen, subject to the existing requirements of the functional currency tax reporting rules.

Accordingly, we will recommend to the Minister of Finance that the definition “qualifying currency” in subsection 261(1) of the Act be amended, effective for taxation years beginning after 2019, to include the currency of Japan.

While we cannot offer any assurance that either the Minister of Finance or Parliament will agree with our recommendation in respect of this matter, we hope that this statement of our intentions is helpful.

Yours sincerely,

Brian Ernewein
Assistant Deputy Minister
Legislation
Tax Policy Branch