Halwachs – Court of Quebec finds that estimates of a taxpayer’s unreported income based on annual changes to his Swiss bank accounts should be translated using year end spot rates

The ARQ estimated unreported income of the taxpayer for his 2008 to 2010 taxation years from offshore investments based in part on its application of the “indirect variation method” to the bank statements which it had obtained for his Swiss bank accounts. This method was based on the change in the total value of funds held by him from the end of one year to the end of the next.

Breault JCQ found that the results of the application of this method should be converted into Canadian dollars by translating the year end fund balances using the spot exchange rates on December 31 and then taking the differences, rather than by determining the differences in foreign currency and then translating those differences using the average exchange rate for the year (as had been done by the ARQ). He stated:

In this case, since the calculation is based on the last day of each of Mr. Halwachs' taxation years in dispute, the Court is of the view that the same logic should be followed in translating the tax results obtained in this manner into Canadian dollars.

After quoting from ITA s. 261(2) and the Quebec equivalent, he further stated:

[T]he day on which the amount of the variation was determined or "arose" was December 31 of each of the 2008, 2009 and 2010 taxation years.

Neal Armstrong. Summary of Halwachs v. Agence du revenu du Québec, 2022 QCCQ 5817 under s. 261(2).