A Canadian corporation acquires capital property at a cost of U.S.$90,000 and pays the purchase price 30 days later after the exchange rate has moved from Cdn.$1.10 to Cdn.$1.11. Before concluding that this resulted in a capital loss of $900 under s. 39(2), CRA stated that “the accrual accounting method for foreign exchange gains or losses is not accepted,” and that:
The following are examples of where the CRA considers a transaction to have occurred and that subsection 39(2) applies:
a) the date on which the conversion of funds from one foreign currency into another foreign currency or into Canadian dollars takes place,
b) the date on which foreign currency funds are used to make a purchase or payment (in which case the gain or loss is the difference between the value of the foreign currency expressed in Canadian dollars when it is realized and its value expressed in Canadian dollars when the purchase or payment has occurred), and
c) the date of repayment of part or all of a debt.
CRA added:
[T]he capital gains or losses resulting from subsection 39(2) will only affect the balance of the capital dividend account at the end of the taxpayer's taxation year.