CRA indicates that amending a foreign-law debt to transition to RFRs is a disposition only if there is discharge and substitution under that law
A number of jurisdictions are working on replacing existing interbank offering rates (IBORs) by “risk-free-rates” (RFRs), for example, replacing CDOR by the Enhanced Canadian Overnight Repo Rate Average (CORRA), and USD LIBOR by the Secured Overnight Funding Rate (SOFR) – so that existing debts with floating interest rates may have consequential amendments to the benchmark rates.
After stating the general principle that “the determination of whether an obligation has been disposed of for Canadian income tax purposes depends on whether these events are considered to result in the discharge of the obligation and the substitution of a new obligation under the law governing the former obligation,” CRA indicated that where the governing law is Canadian, such an amendment “in and of itself, would generally not constitute a disposition of the IBOR Instrument,” and then stated:
Where foreign law governs an obligation … the legal effect of these events on such an obligation under the relevant foreign law must be considered in order to determine if the obligation has been disposed of … .
Neal Armstrong. Summary of 16 December 2019 Roundtable, 2019-0828571C6 under s. 248(1) – disposition.