Principal Issues: Whether a corporation resident in Canada can elect pursuant to 261(3) to use US currency as its functional currency for Canadian tax reporting purposes, and whether the anti-avoidance provisions in 261(20) and (21) would apply to proposed currency hedging transactions entered into between the electing corporation and other related, non-resident corporations.
Position: Based on the facts presented, the corporation can elect to use US currency as its functional currency for Canadian tax reporting purposes, and for the purposes of determining the electing corporation's income, gain or loss in respect of its proposed currency hedging transactions with related, non-resident corporations, subsection 261(21) will not apply.
Reasons: Provided that the US currency remains the primary currency in which the electing corporation maintains its records and books of account for financial reporting purposes throughout the taxation year in which a timely election is filed, based on the facts presented the requirements of subsection 261(3) are otherwise satisfied. Also, 261(21) will not apply for the purpose of determining the electing corporation's income, gain or loss in respect of its proposed currency hedging transactions with related, non-resident corporations to the extent that the other related, non-resident corporations are not subject to tax under the Act on any amount included in their respective Canadian tax results.
