Canadian Currency Requirement When Computing Income
Agnico-Eagle Mines Limited v The Queen, 2016 FCA 130
Subsection 261(2) was enacted to address obiter statements in Imperial Oil Ltd. v. Canada, 2006 SCC 46, that suggested that conversion of foreign currency to Canadian currency was not always required. This was to ensure the practice of computed income tax consequences under the Income Tax Act continued to be determined in Canadian currency.
The Federal Court of Appeal stated that section 261 goes further than confirming the requirement to compute tax results in Canadian currency, and allows taxpayers to make a Functional Currency Election, pursuant to subsection 261(3), in certain circumstances (para 70). The Functional Currency Election was meant to “facilitate compliance and promote more representative financial reporting for taxpayers who maintain their books and records in a foreign currency” (para 70).
Absent a Functional Currency Election, subsection 261(2) requires Canadian Tax Results to be determined using Canadian Currency. “Canadian tax results” is exhaustively defined in 261(1) but by reference to various amounts which may be expressed in a currency other than Canadian currency. The conversation must be done using a stipulated rate of exchange on the date that the foreign currency amount first “arose”. However, there is no guidance on the interpretation of the term “arose” (para 74).
The provisions giving rise to tax consequences in a particular case must be considered as part of determining when relevant amounts “arose” (para 75). This requires consideration of the interaction of the relevant private law instruments and the applicable provisions of the ITA.
The FCA in Minister of National Revenue v. MacMillan Bloedel Ltd. (1999), 243 N.R. 388,  3 C.T.C. 652 (F.C.A.), requires a court to compare, in Canadian currency, “the amount of the consideration given up by the Taxpayer on the repayment of Convertible Debentures, on their Conversion, to the amount received by the Taxpayer upon their issuance” (para 83).
Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3
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