23 June 1989 Ruling 57813 F - Meaning of the Cost Amount of a Loan

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.

June 23, 1989

Dear Sirs:

Re: Meaning of the Cost Amount of a Loan

This is in response to your letter of April 4, 1989.  You have enquired whether the amortized cost and therefore the cost amount of a non-arm's length intercompany loan or advance denominated in a foreign currency, would be appropriately determined by converting it into Canadian dollars at the exchange rate in effect at the time the loan is made or the funds are advanced.

In our view the appropriate rate of exchange in mist cases, would be that which was in effect at the date the money was advanced or the loan was make.  Our position is supported by analysis similar to that set out in your letter.  However, this position is effective only for taxation years commencing after June 17, 1987 and ending after 1987.  Prior to the amendment to the definition of cost amount and the introduction of the definition of amortized cost in Bill C-139 which entered into force September 13, 1988, it was the Department's position that the cost amount (i.e., the amount outstanding at that time) of debt denominated in a foreign currency at a particular time would be determined by converting the debt into Canadian currency at the current exchange rate in effect at that time.

We trust that this is the information you require.

Yours truly,

for Director Reorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch