Regarding a requested clarification of the second part of paragraph 13 of IT-95R regarding the realization of a foreign exchange gain or loss on the use of foreign currency funds, and a query as to whether FX fluctuations, rather than being recognized on a transaction of purchase and sale of investments other than funds on deposit, can have their recognition deferred to when the foreign currency funds are exchanged for Canadian money, CRA stated:
[T]he use of foreign currency funds that could result in a foreign exchange gain or loss is not limited to the acquisition of negotiable instruments but also includes the acquisition of any other property. Consequently, assuming that the transactions are on capital account, there will be a foreign exchange gain or loss calculation in respect of foreign currency funds used to acquire the property that is the corporate shares purchased in the US market. …
Where there is a sale of foreign currency investments other than funds on deposit ("investments"), the CRA's position is that the gain or loss on the sale of the investments will be computed by converting the adjusted cost base and the proceeds of disposition of the investments into Canadian currency using the exchange rate prevailing at the relevant time. Specifically, the CRA's position is that the adjusted cost base is to be converted into Canadian currency using the exchange rate prevailing at the time of the acquisition of the subject investments, and the proceeds of disposition of the investments are to be converted into Canadian currency using the exchange rate prevailing at the time of disposition of those investments. … We do not allow an individual investor to use the method you advocate that would delay recognition of the foreign currency fluctuation.