23 June 1989 Ministerial Letter 57988 F - Foreign Exchange Gains and Losses

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:  Foreign Exchange Gains and Losses

This is in response to your letter of April 26, 1989 wherein you requested a clarification of the definition of "amortized cost" as it applies to a non-arm's length demand note receivable denominated in a foreign currency.

In our view, although a demand loan from a parent company to its subsidiary would not fall within the usual meaning of "amortized cost", the wording of the definition in subsection 248(1) of the Income Tax Act (the "Act") would cause such a note to have an "amortized cost" for the purposes of the Act. Since the term is defined in subsection 248(1) of the Act as "the aggregate of all amounts advanced ...", it is our view that a demand note denominated in a foreign currency should be converted to Canadian dollars at the exchange rate in effect at the time the amounts are advanced. Accordingly, since the "cost amount" of a debt is defined in subsection 248(1) of the Act as its "amortized cost", the rollover provisions set out in section 85 of the Act will generally apply to allow a referral of accrued foreign currency gains on capital debts owning to taxpayers. This position is applicable for taxation years commencing after June 17, 1987 and ending after 1987.

We trust that this is the information you require.

Yours truly,

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