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.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether sectin 80 applies when a foreign currency debt is repaid and a foreign exchange gain is realized on repayment
Position TAKEN:
Under current 80(1), it is arguable that section 80 will apply to the amount of the foreign exchange gain. Under paragraph 80(2)(k) of the draft legislation, the foreign currency fluctuations after the issuance of debt are ignored for the purposes of section 80.
Reasons FOR POSITION TAKEN:
80(1)(f) refers to the excess being included in income; under section 3 only 75% of the foreign exchange gain is included in income
XXXXXXXXXX 940917
Attention: XXXXXXXXXX
July 27, 1994
Dear Sirs:
This is in reply to your letter of April 5, 1994, wherein you requested our comments with respect to the treatment of foreign exchange gains and losses on debt denominated in a foreign currency where the debt is used for capital purposes.
Subsection 39(2) of the Income Tax Act applies to any fluctuation after 1971 of a foreign currency relative to Canadian dollars that results in a gain being made or a loss being sustained. A debtor who has issued a debt instrument denoted in a foreign currency will make a foreign exchange gain or sustain a loss upon settlement of the debt instrument.
We direct your attention to the draft legislation on debt forgiveness and foreclosures released by the Department of Finance on July 12, 1994. In particular, paragraph 80(2)(k) of the draft legislation provides that where an obligation is denominated in a currency other than the Canadian currency, the forgiven amount at any time in respect of the obligation shall be determined with reference to the relative value of that currency and the Canadian dollar at the time the obligation was issued. The explanatory notes to the draft legislation indicate that this paragraph provides that foreign currency fluctuations after the time an obligation is issued are ignored for the purposes of section 80 of the Income Tax Act.
We trust the above comments are of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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