4 June 1993 External T.I. 9313845 F - Capital Gains / Losses on Foreign Currencies

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  XXXXXXXXXX Disallowance of Net Capital Losses

This is in reply to your letter dated January 6, 1993 concerning the net capital losses disallowed to some of the unitholders of the partnership for the years 1987 to 1991 inclusively. Your question resides in the application of subsection 39(2) of the Income Tax Act (the Act) to the capital losses related to foreign exchange losses realized in the partnership on the repayment of U.S. dollar denominated debt.

It is your view that the allowable capital losses of the unitholders should not be disallowed on the basis of subsection 39(2) of the Act, as this subsection does not pertain to the net capital gains or allowable capital losses allocated to partners.

Subsection 39(2) applies to any fluctuation after 1971 of a foreign currency relative to Canadian dollars that results in a gain being made or a loss being sustained. In the case of individuals the rules in subsection 39(2) provide that only the amount in excess of $200 of the individual's net gain or loss on the disposition of foreign currency is taxable or deductible as a capital gain or loss.

Subsection 39(2) of the Act applies to a "taxpayer". "Taxpayer" is defined in subsection 248(1) of the Act and it includes any person whether or not liable to pay tax. "Person" is also defined in subsection 248(1) to include any body corporate and politic, and the heirs, executors, administrators or other legal representatives of such person. Under subsection 248(1), "individual" means a person other than a corporation. The above definitions apply to the whole Act.

As you outlined in your letter, "subsection 96(1) provides that a partner's taxable income and net capital losses are computed as if the partnership were a separate person resident in Canada". Even though a partnership is not a person and is not deemed to be a person for purposes of the Act, subsection 96(1) of the Act provides that in determining a member's share of the income or loss of the partnership from a source or from sources in a particular place, the partnership first computes its income as if it were a person.

It is our opinion that since the taxable capital gain and allowable capital loss are determined at the partnership level, subsection 39(2) should apply at the partnership level before the loss allocation to each partner.

As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the above opinion does not constitute a ruling and accordingly, is not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.      Monique Wistaff, International Taxation Office