7 June 1999 External T.I. 9907935 - FOREIGN DOLLAR REPORTING

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:

1) Can a Canadian company which does all its business in the US report it income on its Canadian income tax return using US dollars ?

2) Can a Canadian company which does all its business in US dollars keep its books and records in Us dollars ?

Position:

1) N0

2) No legislative requirement that books be kept in Canadian dollars but GAAP would probably require it as transactions must be converted.

Reasons:

1) Income as used in section 3 means Canadian dollars and Gaynor v The Queen (91 DTC 5288) confirms that an amount is expressed in canadian currency.

2) No legislative reference but IT-95R discussed accounting method, GAAP would also require the foreign currency be translated and reported in the currency of the country the corporation reports to. It would follow that the actual keeping of the books and records in the reporting currency is the less complicated method of doing business.

XXXXXXXXXX 							C. Tremblay
								990793
Attention: XXXXXXXXXX 

June 7, 1999

Dear XXXXXXXXXX:

This is in reply to your letter of March 12, 1999, wherein you seek information on whether or not a Canadian corporation can report income and keep books and records in a currency other than in Canadian dollars. Specifically, you ask the following two questions.

Question 1:

Can a Canadian company which does all of its business in United States ("US") dollars report its income on its Canadian tax returns using US dollars and pay its income taxes using US dollars? You also asked for the legislative reference that requires taxable income to be reported and income taxes to be paid in Canadian currency.

Our Comments

There is no specific legislative reference in the Canadian Income Tax Act (the "Act") requiring Canadian dollar reporting. However, the Act is a Canadian statute and thus, in general terms, it is our view that a taxpayer's taxable income should be expressed in Canadian dollars.

The case law supports our view that transactions should be measured in Canadian currency either at the time of the transaction, or at a time that produces substantially the same dollar amounts that would have resulted had the underlying transaction been converted into Canadian currency on the dates that they occurred. The Federal Court of Appeal case of Hope R. Gaynor v. The Queen (91 DTC 5288) confirmed that an "amount" refers to an amount expressed in Canadian currency. Alberta Gas Trunk Line Company Limited v. MNR (71 DTC 5403 ) supports our view that income or losses must be measured in Canadian dollars for Canadian tax purposes. See also Bank of Nova Scotia v The Queen (80 DTC 6010) where it was established that for Canadian taxation purposes, the foreign currency profit and losses must be expressed in terms of Canadian currency.

Question 2:

Can a Canadian company which does all its business in US dollars keep its books and records solely in US dollars? You also ask for the legislative reference that requires books and records be kept in Canadian dollars.

Our Comments:

There is no legislative reference requiring that books and records be kept in Canadian dollars. However, as noted above, reporting for income tax purposes must be done in Canadian dollars. Please refer to the paragraph on page 9 of the 1998 General Income Tax Guide, entitled- How do you report foreign income and other amounts? The T2 guide provides general comments on certain foreign exchange gains or losses.

The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with our policy set out in paragraph 22 of Information circular 70-6R3.

We trust that this comments are of assistance

Yours truly,

J. F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch