CRA rules that conversion of U.S.-dollar into Canadian-dollar debt occurs on a rollover basis

CRA has ruled (see also 2008-0300161R3) respecting the exchange (subsequent to the addition of an exchange right) of old non-interest bearing U.S.-dollar debt for new debt with a Canadian-dollar principal (presumably equal to the equivalent of the old debt’s U.S.-dollar principal at the time of the exchange).  CRA considered that s. 51.1 (which requires that the new and old debt have the same principal amounts) accords rollover treatment to the creditor, and that s. 39(2) (or s. 80 – see s. 80(2)(k)) does not generate income to the debtor (see also 9532285).  This is favourable, as more generally the principal amount of a U.S.-dollar obligation should be expressed in Canadian dollars based on the historical rather than current exchange rate - see Imperial Oil.

CRA also ruled on ATR-66-style "debt slide" transactions.  CRA contemporaneously released an interpretation indicating that the "cancellation ... [of ATR-66] does not represent a change in the CRA's view as to whether the general anti-avoidance rule would apply to the transaction described therein."

Neal Armstrong.  Summaries of 2014 Ruling 2013-0514191R3 under ss. 51.1 and 80.01(4) and summary of 4 April 2014 T.I. 2014-0522501E5 under s. 80.01(4).