GST/HST Memorandum 3-6 Conversion of Foreign Currency July 2018

Use of payment or exchange date, or monthly average, where consistent

5. The following days are acceptable to the Minister for converting the value of the consideration for a supply into Canadian currency from a foreign currency:

• the day the consideration for the supply is paid
• the day the foreign currency is acquired

6. An average rate of exchange for the month in which the tax becomes payable can also be used.

7. Where a registrant uses a particular day for the conversion of foreign currency, as per paragraph 5 above, the registrant is to use the particular day consistently and for a reasonable period of time, such as one year.

Separate business lines/weekends

8. A registrant with separate business lines may use different days for the conversion of foreign currency for the different business lines where circumstances merit such treatment with the approval of the Minister.

9. If the method chosen to convert foreign currency into Canadian currency results in the date of conversion occurring on a weekend or a holiday, the rate of exchange for the previous business day should be used.

Example 2 (re the day the foreign currency is acquired – occurring on date of money order purchase)

On April 12, 2017, a non-resident … invoiced a Canadian GST/HST registered recipient of a supply for $1,000 US, for a taxable supply made in Alberta that was subject to the GST at a rate of 5%. The recipient received the invoice and purchased a money order for $1,000 US on June 16, 2017.

Example 3 (example of using monthly average where only 2 transactions)

In June 2017, two taxable supplies were made in Nova Scotia to one GST/HST registered recipient.

Acceptable exchange rate sources

13. … [A] person may use the exchange rate from:

• the source used for an actual conversion (that is, the source where the foreign currency was exchanged for Canadian dollars)
• the source the person typically uses for actual conversions
• a Canadian chartered bank
• the Bank of Canada
• the rate provided by the … CBSA … for purposes of converting the value for duty of imported goods

Example 4 (regular use of a local U.S. bank for FX exchange)

… [A U.S.] company regularly uses the services of a local American bank to exchange US currency for foreign currencies and vice versa.

Since the company regularly uses the local bank to exchange currencies, the local bank is an acceptable exchange rate source

Example 5 (database service not an acceptable source)

The company … subscribes to a database service that tracks and reports currency exchange rates, including rates on the interbank market, rates set by the Bank of Canada, and average rates offered by Canadian chartered banks. The database service does not actually buy and sell currency.

The database service is not an acceptable source of exchange rates for GST/HST purposes. The rates provided do not reflect the actual exchange rate used by the company and are not one of the acceptable sources to be used when an actual rate is not chosen.

Inclusion of premium paid to obtain FX

16. If a premium is paid to obtain foreign currency for a particular foreign-currency‑denominated transaction, any additional costs associated with obtaining the foreign currency must be included when converting the foreign currency into Canadian currency.

ETA s. 159 provides that the consideration for a supply expressed in a foreign currency shall be converted using the exchange rate on the day the tax became payable “or such other day as is acceptable to the Minister.” CRA has replaced P-222 by significantly more detailed commentary in Memorandum 3-6 on various FX issues.

In picking an FX rate, the registrant may use:

• the day the consideration for the supply is paid
• the day the foreign currency is acquired (as to which CRA provides a simplistic example of the day on which a money order for US$1,000 is acquired, with Canadian funds, to pay a USD invoice in that exact amount)
• an average rate of exchange for the month in which the tax becomes payable (as to which CRA provides an example in which only two USD invoices were rendered in a month, showing that this method can be used even if it would be practicable to be more precise)

CRA provides a somewhat broad list of the acceptable sources for determining the exchange rate to use:

• the source used for an actual conversion (that is, the source where the foreign currency was exchanged for Canadian dollars)
• the source the person typically uses for actual conversions (for example, if a US company regular exchanges currency with a local US bank, it can use that bank as its source of FX rates)
• a Canadian chartered bank
• the Bank of Canada
• the CBSA rate used for purposes of converting the value for duty of imported goods

An example of an unacceptable source is a commercial database service.