CRA applies its four conditions for the use of an average exchange rate to the example of a stripped coupon

Regarding when an average exchange rate could be used In the case of foreign-currency denominated stripped coupon, for which interest is deemed to accrue pursuant to ss. 12(3), (4) and (9), CRA indicated that, given the steady and day-to-day accrual of the interest amounts to be translated, the first two of its four conditions for an average exchange rate would be satisfied, namely, that the foreign currency amounts “are relatively stable and evenly distributed” and “are sufficiently frequent and spread out” to avoid distortion. Regarding satisfaction of the third condition (“the relevant exchange rate does not fluctuate significantly over the period”), that would require an assessment of the impact of the exchange rate differences on the amount to be converted.

Regarding the fourth condition (“the average rate is the rate used by the taxpayer each time these conditions are met”), CRA noted that, in this context, this meant that the average rate should be used whenever the third condition was satisfied.

Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.2 under s. 261(2)(b).