CIBC – Tax Court of Canada finds that s. 39(2) historically applied only to FX gains or losses on liabilities and foreign currency dispositions

CIBC realized an FX loss of C$126.4 million in 2007 when shares of a US subsidiary for which it had subscribed US$1 billion were redeemed for US$1 billion. Owen J rejected the CIBC position - that such loss was deemed by s. 39(2) to be a capital loss from foreign currency and therefore was excluded from the application of the s. 40(3.6) stop-loss rule, which applied only if the loss were viewed as having arisen from the disposition of the subsidiary’s shares – indicating that this position was inconsistent with a statement in the BMO case that: “[t]he gain or loss arising as a result of a disposition of a particular property was (and still is) determined under subsection 40(1)” before any application of s. 39(2).

Furthermore, Owen J disagreed with the CIBC position, stating:

[S]ubsection 39(2) was not required to address foreign currency fluctuations associated with acquisitions and dispositions of property other than foreign currency because subsection 40(1) read with due regard to the need to convert the amounts identified in that subsection into Canadian dollars already addressed such fluctuations and integrated them into the gain or loss computed under subsection 40(1).

… [T]his fact and the fact … that extending subsection 39(2) to dispositions of property other than foreign currency raises difficult issues together strongly suggest that Parliament did not intend that subsection 39(2) apply to dispositions of property other than foreign currency. …

In conclusion … subsection 39(2) as it read in 2007 was a stand-alone provision but Parliament did not intend that the subsection apply to dispositions of property other than foreign currency.

Neal Armstrong. Summary of Canadian Imperial Bank of Commerce v. The Queen, 2021 TCC 71 under s. 40(3.6), General Concepts – Stare Decisis and Statutory Interpretation – Prior Cases.