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: What is the correct method for computing gains or losses on the sale of capital property when the property is denominated in a foreign currency?
Position: All amounts are converted to Canadian dollars, then the adjusted cost base and outlays and expenses are deducted from the proceeds of disposition.
Reasons: Subsection 261(2) of the Act, and the Federal Court of Appeal case, Hope R. Gaynor v The Queen, 91 DTC 5288.
XXXXXXXXXX
June 10, 2014
Dear XXXXXXXXXX:
Mr. Andrew Treusch, Commissioner of the Canada Revenue Agency (CRA), has asked me to reply to your correspondence of April 24, 2014, asking for confirmation of the correct method for calculating capital gains and losses on the sale of capital property in a foreign currency.
A capital gain or loss on the disposition of capital property is calculated by subtracting from the proceeds of disposition the total of the property's adjusted cost base and any outlays and expenses incurred to sell the property. As you correctly noted, the CRA's long-standing position on the calculation of the gain or loss on the sale of capital property in foreign currency is to:
a) convert the proceeds of disposition to Canadian dollars using the exchange rate in effect at the time of the sale;
b) convert the adjusted cost base of the property to Canadian dollars using the exchange rate in effect at the time the property was acquired; and
c) convert the outlays and expenses to Canadian dollars using the exchange rate in effect at the time they were incurred.
This method was confirmed by the Federal Court of Appeal in Hope R. Gaynor v Her Majesty the Queen, 91 DTC 5288, and was codified in 2007 by subsection 261(2) of the Income Tax Act, applicable for all tax years.
However, when the sale of the property is on income account, the method for calculating the gain or loss is set out in paragraphs 7 through 11 of Interpretation Bulletin IT-95R, Foreign Exchange Gains and Losses, available at www.cra.gc.ca/E/pub/tp/it95r/.
I understand that you might have received conflicting information from the CRA. I will contact my counterpart in the Taxpayer Services and Debt Management Branch to make sure the CRA's reference material reflects the above methodology.
I trust the information I have provided is helpful and thank you for bringing this to the CRA's attention.
Yours sincerely,
Rick Stewart
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch
Sherry Thomson
2014-052996
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