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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
February 9, 1993
Charities Division Rulings Directorate
R.A. Davis, Director J.D. Brooks
957-2103
Attention: Judy Torrance
930079
Foreign Exchange Forward Contracts
and Debts of Charitable Foundations
We are writing to you in reply to your memorandum of January 7, 1993 in which you requested our opinion as to whether the purchase of currency by a private foundation by means of a foreign exchange forward contract would result in the foundation incurring debt which is described in paragraph 149.1(4)(d) of the Income Tax Act. Your memorandum arose from an enquiry from XXXXXXXXXX which you attached to your memorandum. The scenario which XXXXXXXXXX presented was as follows:
A private foundation may wish to invest in bonds of
companies or governments in foreign jurisdictions. Since
the repayment by the companies or governments would be in
a foreign currency, the foundation may wish to hedge its
investment against currency exchange fluctuations. Thus,
the foundation may become a party to a foreign exchange
forward contract.
Our Comments
Foreign exchange forward contracts were described in an attachment to the enquiry submitted by XXXXXXXXXX as being private agreements between a bank and its client in which the two parties agree to an exchange rate which will be used to exchange a stated quantity of one currency for another currency at a specified future time. Thus if the foundation had an investment which was due and receivable in a foreign currency at a specified date in the future, the foundation could eliminate uncertainty concerning the Canadian-dollar equivalent of the foreign currency which it would receive by entering into a foreign exchange forward contract with a bank.
It is our view that a commitment by a foundation to such a contract would not result in the foundation having incurred a debt at the time it entered the contract. The foundation has contracted to sell a property (a sum of foreign currency) at a fixed price in the future.
It is also noted that, pursuant to paragraph 149.1(4)(a) of the Act, a foundation may not carry on any business. A foundation might be viewed as carrying on a business if there were sufficient frequency of dealing in forward contracts. This would be a question of fact.
We trust that our comments are of assistance. E. Wheeler for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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