7 October 2016 APFF Roundtable Q. 17, 2016-0652781C6 F - Functional currency and acquisition of control -- summary under Subsection 40(10)

CRA noted that where a taxpayer with an elected functional currency (e.g., the USD) has an accrued FX loss on a debt obligation owing in another foreign currency (e.g., the euro), an s. 111(4)(e) election made following an acquisition of control of the taxpayer will not affect the FX gain which would be realized under s. 261(10) re a pre-transition debt, so that it is only changes in the euro/USD exchange rate occurring from the beginning of the taxpayer’s first "functional currency year" up to the acquisition of control that would be subject to ss. 111(4) and (12). In response to the question as to whether, if an s. 111(4)(e) election is made, do ss. 40(10) and (11) apply, CRA stated:

As such an election cannot be made in respect of the portion of the foreign exchange gain realizable by virtue of subsection 261(10), subsections 40(10) and (11) will not apply.