8 December 2009 Roundtable, 2009-0347661C6 - debt parking and foreign currency

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether paragraph 80(2)(k) applies for purposes of determining the "forgiven amount" for purposes of subsection 80.01(8)?

Position: Yes, paragraph 80(2)(k) applies for purposes of determining the "forgiven amount" under the debt-parking rules in section 80.01.

Reasons: This result flows from the provisions of the Act.

2009 Tax Executive Institute (TEI) Conference - December 8, 2009:

Question 8: Application of Paragraph 80(2)(k) to Debt-Parking Rules

Subsection 80(2) of the Act states that paragraph 80(2)(k) applies solely for purposes of section 80. In addition, paragraph 80(2)(k) is not among the paragraphs enumerated in paragraph 80.01(2)(a) that apply expressly to the debt-parking rules of section 80.01. On the other hand, the definition of "forgiven amount" in subsection 80.01(1) expressly refers to the definition of "forgiven amount" in subsection 80(1). By implication, the cross-reference to subsection 80(1) seemingly incorporates the deeming rule in paragraph 80(2)(k) because paragraph 80(2)(k) applies in determining the "forgiven amount" under subsection 80(1). This interpretation of the cross reference seems supported by the Crown's arguments, and the Federal Court of Appeal decision, in Erling Marvin Olsen v. The Queen, 2002 DTC 6770 (January 14, 2002). Yet technical interpretation 2008-0267831E5 (June 4, 2008) held that paragraph 80(2)(k) does not apply to adjust the amount deemed to have been paid on the settlement of a foreign-denominated debt under subsection 80.01(3) upon the amalgamation of the debtor and creditor.

Would CRA confirm that paragraph 80(2)(k) applies for purposes of the debt-parking rules, especially to subsection 80.01(8)?

CRA Response

In technical interpretation 2008-0267831E5 (June 4, 2008), the impact of paragraph 80(2)(k) was considered when determining the "forgiven amount" in a case where subsection 80.01(3) of the Act applied. However, as we stated, since the amount deemed paid pursuant to subsection 80.01(3) was converted at the historical exchange rate (i.e. the exchange rate at the time the Debt was issued), it was not adjusted by paragraph 80(2)(k) to arrive at the amount paid, for purposes of subsection 80(1). Thus, although, paragraph 80(2)(k) was applicable, its application had no impact in the facts of that particular case.

We are of the view that paragraph 80(2)(k) of the Act applies for purposes of determining the "forgiven amount" that arises as a consequence of the application of the debt parking rules in section 80.01 of the Act. Moreover, paragraph 80.01(11) of the Act provides that the deemed settlement of an obligation under 80.01(8) or (9) will not trigger the recognition of any foreign currency gain or loss by the debtor that has accrued in respect of the debt. Rather, such foreign currency gain or loss would be realized on the actual settlement of the obligation in accordance with subsection 39(2).