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.
Principal Issues: Whether a partnership is required to recognized foreign exchange gains or losses when foreign debt is assumed by the partners in conjunction with a rollover of partnership property to the partners pursuant to subsection 98(3) of the Act.
Position: Question of fact but generally yes.
Reasons: This position is consistent with our position regarding the assumption of debt by a transferee corporation where property has been transferred to the corporation under section 85 of the Act.
XXXXXXXXXX 2009-031759
J. Gibbons, CGA
November 16, 2009
Dear XXXXXXXXXX :
Re: Foreign Exchange Gains / Losses on Assumption of a Partnership's Foreign Debts
This is in reply to your email dated April 12, 2009, concerning the above-noted issue.
In particular, you have asked for our opinion about whether a foreign exchange gain or loss on account of capital can be recognized in the hypothetical situation where a Canadian partnership is dissolved in accordance with subsection 98(3) of the Income Tax Act (the "Act") and, as part of the dissolution, each former partner assumes a pro rata share of the foreign debt obligations of the partnership.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
Subsection 39(2) of the Act provides that a gain made or loss sustained by a taxpayer by virtue of any fluctuation of a foreign currency relative to the Canadian dollar and that is not on account of income is a capital gain or capital loss, as the case may be. Generally, it is our view that subsection 39(2) of the Act applies only where an actual transaction has taken place. It is our view that foreign exchange gains or losses can generally be recognized in the circumstances described above, i.e., where foreign debt obligations are assumed by former partners as part of a rollover under subsection 98(3) of the Act.
Notwithstanding the above, it is always a question of fact whether or not subsection 39(2) of the Act would apply to a particular transaction, and this can only be determined following an actual review of all of the relevant facts and circumstances.
We trust these comments will be of assistance.
Yours truly,
G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009
Email this Content