8 September 2005 External T.I. 2004-0085081E5 - Conversion of a foreign currency denominated debt -- summary under Subsection 39(2)

Where the holders of US-dollar denominated convertible debentures of a Canadian public corporaton ("Pubco") convert their debentures into common shares at a time that the US dollar has depreciated relative to the issue date, Pubco will realize a gain under s. 39(2) assuming that the stated capital of the shares issued by Pubco on the conversion, measured at the time of the settlement of the debentures, is less than the Canadian-dollar equivalent of the debentures' principal on the date of their issue.