Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 132220
Business Number: [...]
October 13, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Request for Approval of Foreign Currency Exchange Methodologies
Thank you for your letter of January 18, 2011, where you seek our approval of the methodologies you are using to convert the value of consideration for a supply made in foreign currency into Canadian currency.
A review of your request indicates the following:
1- [...] (the "Supplier") makes supplies for which the consideration is expressed in foreign currency;
2- The Supplier accounts for these supplies by recording such transactions continuously in its accounting system throughout the day;
3- At the time that a supply is accounted for in the Supplier's accounting system, an invoice for the supply is issued to the recipient. On the invoice, the consideration for the supply is expressed in foreign currency. Any GST/HST applicable to the supply becomes payable by the recipient at the time that the invoice is issued;
4- At the time that a supply is accounted for in the Supplier's accounting system and an invoice is issued in respect of that supply, the Supplier converts the consideration from foreign currency to Canadian currency;
5- The Bank of Canada noon rate for a particular day is not available until after 12:00 pm (i.e., noon) Eastern Standard Time on that day. Since its transactions are recorded continuously and invoices are issued throughout a particular day, the Supplier has converted the foreign currency amounts on the invoices to Canadian currency using the Bank of Canada's noon exchange rate for the business day prior to the day on which the amount is accounted for and the corresponding invoice is issued;
6- This methodology has been used consistently by the Supplier and has been used for many years. The Supplier has used this foreign currency conversion methodology to account for its purchases as well as its sales;
7- However, the Supplier no longer uses this methodology for [...] [Product X] supplies, and has begun to use a different foreign currency conversion methodology for [Product X] supplies;
8- Pursuant to its new methodology, the Supplier continues to convert the foreign currency amounts on invoices issued in respect of transactions that occur prior to noon on a particular day to Canadian currency using the Bank of Canada's noon exchange rate for the business day prior to the day on which the amount is accounted for and the corresponding invoice is issued. However, invoices that are issued in respect of transactions that occur after noon on that particular day are converted to Canadian currency using the Bank of Canada's noon exchange rate for that particular day. That is, two different exchange rates are used on any particular day that [Product X] supplies are made; and
9- The Supplier will use this foreign currency conversion methodology consistently until [mm/dd/yyyy] at which time another methodology may be used. The Supplier uses this foreign currency conversion methodology to account for its purchases as well as its sales.
Based on the above, we are pleased to advise that the foreign currency exchange methodologies are acceptable to the Minister pursuant to section 159, from the time that they were first used by the Supplier.
Section 159 provides that where the consideration for a supply is expressed in a foreign currency, the value of the consideration shall be computed on the basis of the value of that foreign currency in Canadian currency on the day that tax is payable, or on such other day as is acceptable to the Minister. The Supplier uses days other than the day on which tax is payable to convert the value of consideration for a supply, expressed in a foreign currency, to Canadian currency. The days used by the Supplier to compute the value of the consideration for its supplies in Canadian currency is a day that is acceptable to the Minister. The Supplier's use of these days to calculate the conversion of the value of consideration from foreign currency to Canadian currency is acceptable to the Minister from the time that the Supplier first used these days because the days have been, or will be, used consistently by the Supplier since that time.
Sufficient documentary evidence must be maintained with respect to the exchange rate in effect on the date of conversion, in accordance with GST Memorandum 300-7-10: Foreign Currency. A supplier must also maintain sufficient documentation and books and records to support the currency conversion method used. The books and records are required to be in an appropriate form and must contain sufficient information to allow determination of the amount of tax to be paid, collected, deducted or refunded.
For your future reference, please note that paragraph 11 of Memorandum 300-7-10 states that any method used to determine the value of the consideration of a supply in Canadian currency, other than the use of the exchange rate in effect on the day the tax is payable, and the methods listed in that Memorandum, must be submitted in writing to the Minister for approval prior to its application. You should also note that the Minister requires that, where a method of determining the Canadian dollar equivalent of the value of the consideration is used (other than using the exchange rate on the day the tax is payable), that method must be applied consistently for at least one year from the end of the reporting period in which the method was first used.
If you require clarification with respect to any of the issues discussed in this letter, please call the Manager of the Specialty Tax Unit directly at 613-952-9219. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Pierre Bertrand
Director General
Excise & GST/HST Rulings Directorate
UNCLASSIFIED
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