CRA continues a factually-based approach to the choice of currency for surplus account purposes

The amendment of Reg. 5907(6) to permit a foreign affiliate - rather than computing its surplus account balances in the country of its residence, or to do so in another foreign currency where this is reasonable in the circumstances – to also potentially use the Canadian dollar, has not changed CRA’s views as to the criteria to be applied to the reasonableness standard (and, it would appear, a related consistency standard). CRA states:

A number of criteria may apply in determining if it is reasonable to use the Canadian dollar…such as…the principal currency in which the corporation maintains its books and registers for purposes of presenting its financial results, the currency generally used in conducting its commercial transactions in the country in which it carries on business, and the currency which it uses for taxation purposes in the country of its residence. If an examination of these criteria, as well as others considered to be appropriate, permits a determination that use of the Canadian dollar presents a fair picture of the surplus account balances of the foreign affiliate, we will consider that such use is reasonable in the circumstances.

In the situation where the Canadian taxpayer now wants to use the Canadian dollar respecting the foreign affiliate and the reasonableness standard is satisfied, the published comment does not set an explicit deadline for starting to effect the conversion (which, when implemented, generally would use the 31 December 2009 spot rate, i.e., for the applicable FX trading day for 1 January 2010, being the commencement of the taxation year following the effective date of the amendment) - although perhaps some sort of clock started ticking once the amendment was passed on 26 June 2013, given that the comments refer to converting years that terminated before that June date.

Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 24, 2014-0538181C6 F under Reg. 5907(6).