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.
This memorandum is further to yours dated July 13, 1989, in which you asked for further comments on our memorandum to you dated May 10, 1989 (our file 7-3789. You enclosed with your memorandum submissions made on behalf of XXX.
We have previously set out the relevant facts in our earlier memorandum. For convenience, these facts are summarized below.
FACTS
- 1. XXX
- 2. XXX
- 3. XXX
- 4. XXX
SUMMARY
After reviewing the arguments of XXX, we maintain the position taken in our previous memorandum.
ANALYSIS
XXX refers to Canadian General Electric Co. Ltd. v M.N.R., [[1961] C.T.C. 512] 15 DTC 1300 (SCC) to support his submission that the hedge premium is incurred as soon as the hedge contract has been entered into. However, the General Electric decision did not deal with whether an expense had been "incurred". That case dealt with the recording of foreign exchange gains and losses (not hedge premiums) in respect of debts owed in a foreign currency. While the time for payment of the debt had been deferred to the future, the obligation to pay the debt was a present obligation. In contrast, it is the obligation, to pad (and not merely the date for payment) that been deferred in XXX case. In essence XXX.
If no expense has been incurred for purposes of the Act, the treatment of the hedge premium for purposes of GAP becomes irrelevant. We note the following excerpt from Jack L. Cummings v The Queen, [[1981] C.T.C. 285] [1981] CTC 285 (FCA):
- [...] the fact of the acceptability in accounting practice of dealing with a particular item in a particular manner, cannot, by itself make that practice a proper deduction for income tax purposes.
We trust that our comments will assist you with your re-assessment. If you require any further clarification, please do not hesitate to contact us.
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