28 July 2010 External T.I. 2010-0374471E5 - Foreign exchange gains and losses on deposits

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: Is a taxpayer obligated to report a foreign currency gain or loss in respect of the conversion of funds on deposit for the purposes of the Income Tax Act?

Position: Yes.

Reasons: Pursuant to ITA 39(2), if an individual's net foreign exchange gain or loss in respect of capital property is in excess of $200, it is taxable as a capital gain or deductible as a capital loss.

XXXXXXXXXX 								2010-037447
									T. Posadovsky, CMA
									(613) 952-8283
July 28, 2010

Dear XXXXXXXXXX :

Re: Foreign exchange gains and losses on deposits held in foreign currencies.

We are writing in response to your email of July 13, 2010, in which you requested our comments concerning the income tax consequences to an individual who converts funds being held on deposit in a foreign currency to Canadian dollars. Specifically, you ask if the individual should report the gain or the loss related to the fluctuation in the value of a foreign currency relative to Canadian dollars. You specified that the conversions were in respect of capital property, such as money held in a savings account, or term deposits being rolled over into new term deposits.

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments, which may be of assistance.

Our Comments

Subsection 39(2) of the Income Tax Act (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. In the case of individuals, only an amount in excess of $200 of an individual's net gain or loss on the disposition of foreign currency is deemed to be taxable as a capital gain or deductible as a capital loss. Generally, it is our view that subsection 39(2) of the Act applies only where an actual transaction has taken place such as where funds on deposit in foreign currency are converted into another currency or are used to purchase a negotiable instrument or some other asset. Administratively, the rollover of one term deposit into another term deposit of the same foreign currency would not be considered a disposition for the purposes of subsection 39(2).

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. For further information related to foreign currency conversions, please refer to IT-95R, Foreign Exchange Gains and Losses, available on our website at www.cra-arc.gc.ca.

We trust that these comments have been of assistance.

Yours truly,

Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch