What foreign exchange rate is applied to the accrued interest on an FX-denominated debt to which s. 20(14) applies?
CRA indicated that in applying ss. 261(2)(b) and 20(14), it is the amount of foreign currency interest accrued at the time of transfer that is translated using the day of the transfer. Therefore, the accrued interest converted to Canadian dollars, using the relevant spot rate for the date of transfer, is what is used in determining both the transferor’s income inclusion under s. 20(14)(a), and the transferee’s deduction under s. 20(14)(b). That spot rate is appropriate from the transferor’s perspective as the day the accrued interest is computed and the rights thereto disposed of, and also from the transferee’s perspective as the day on which it acquired the right thereto.