Words and Phrases - "expense"

a
90
b
44
c
86
d
57
e
43
f
31
g
20
h
15
i
77
j
2
k
2
l
32
m
58
n
29
o
41
p
82
q
3
r
78
s
95
t
47
u
16
v
10
w
23
y
2

Avis Immobilièn G.M.B.H. v. The Queen, 94 DTC 1039, [1994] 1 CTC 2204 (TCC)

Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i)
FX loss on loans repaid in DM related to separate exchange transaction

The taxpayer, which was a corporation resident in West Germany, borrowed deutschemarks ("DM") from a German bank to help finance the acquisition in 1983 of three properties in Montreal. The bank consented to a sale in 1986 of the properties to an arm's length purchaser ("MCLR") provided that the taxpayer repaid the loans out of the proceeds of a sale of the properties to its shareholders ("Vogel" and "Fischer"). Vogel and Fischer financed the purchase by borrowing DM personally from the bank secured by hypothecs on the properties, then sold the properties to MCLR subject to the hypothecs.

In finding the that taxpayer had not made or incurred an outlay or expense for purposes of s. 40(1)(a)(i) by virtue of the appreciation of the DM between 1983 and 1986, Rip TCJ. found that no foreign exchange loss had arisen on the repayment of the DM loan with DMs, and that the foreign exchange loss arose as a result of DM being exchanged for dollars in 1983 and dollars being reconverted into DM in 1986. This exchange transaction was not effected "for the purpose of" disposing of the properties, i.e., "for the immediate or initial purpose" of so doing. S.40(1)(a)(i) "does not contemplate expenses or outlays which may have merely facilitated the making of the disposition or which were entered into on the occasion of the disposition." (p. 1046).

Words and Phrases
expense for the purpose of

Macmillan Bloedel Ltd. v. The Queen, 90 DTC 6219, [1990] 1 CTC 468 (FCTD)

Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e)
loss on forward contract to lock in Canadian dollar cost of U.S.-dollar borrowing was issue expense

After the taxpayer had arranged to borrow U.S. $75 million through an issuance of debentures, it entered into forward hedging contracts for the future delivery by it of U.S. dollars at specified conversion rates. The difference between the Canadian-dollar equivalent of the taxpayer's U.S.-dollar borrowing, measured at the spot rate of exchange at the time of closing the issuance of the debentures, and the Canadian dollars (net of a fee charged by The Royal Bank for extending the forward contracts) received (around the time of closing) by the taxpayer under the forward contracts, was held to be a deductible expense under s. 20(1)(e). Collier J.,in accepting the evidence of the taxpayer's expert accountant, stated (at p. 6225):

[W]hen one carefully analyzes the situation, there are, from a business and accounting view, two transactions. There was a loan obtained by the plaintiff in the United States. When the funds became available, there was another transaction: the obtaining of Canadian funds. The loss on the second transaction was, in my view, an expense incurred in the course of borrowing the U.S. funds."

Words and Phrases
expense