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: Functional Currency Tax Reporting
Position: See below.
Reasons: See below.
2010 Canadian Tax Foundation Conference
CRA Round Table
November 28, 2010
Functional Currency Tax Reporting
Question 25
Assume that a public corporation (Canco) carries on business primarily in Canada and reports to its shareholders in Canadian dollars. Canco also carries on business in the United States through a controlled foreign affiliate. Canco incorporates a Canadian subsidiary (Subco) to hold the shares of the foreign affiliate. Subco raises its capital in US dollars and assumes control of the financing of the foreign affiliate. Subco maintains records and books of account in US dollars.
Is Subco precluded from reporting its Canadian tax results in US dollars because its financial results are consolidated with those of Canco, whose reporting currency is the Canadian dollar?
Response 25
Subco would not be eligible to report its Canadian tax results in US dollars unless the US dollar is Subco's "functional currency" as that term is defined in subsection 261(1):
"[F]unctional currency" of a taxpayer for a taxation year means the currency of a country other than Canada if that currency is, throughout the taxation year,
(a) a qualifying currency; and
(b) the primary currency in which the taxpayer maintains its records and books of account for financial reporting purposes.
A corporation will have a functional currency as defined in subsection 261(1) only if its records and books of account are maintained in a qualifying currency for financial reporting purposes. Thus, financial reporting must be the primary reason that the books and records are maintained in a qualifying currency. A corporation does not have a functional currency simply because it maintains its records and books of account in a qualifying currency.
In general, the CRA would be willing to accept that in the circumstances described in the question, Subco is maintaining its books and records of account in US dollars for financial reporting purposes if the following conditions are met:
1) The US dollar is the business currency of Subco (that is, the primary currency in which its transactions occur). In this respect, we expect that Subco would raise its capital in US dollars and derive the majority of its revenues in US dollars.
2) Subco's balance sheet and income statement are prepared in US dollars for the purposes of presenting the financial condition of the corporation to its shareholder and, where applicable, its creditors.
Paul Oatway
2010-038589
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