| 24(1) | 5-900752 |
| A. Seidel | |
| (613) 957-8960 | |
| 19(1) | EACC9666 |
September 10, 1990
Dear Sirs:
This is in reply to your letter of May 7, 1990 requesting a technical interpretation of proposed subsection 181.2(3) of the Income Tax Act (the "Act") with respect to deferred foreign exchange gains or losses.
It is your view that deferred foreign exchange gains or losses do not form part of a corporation's capital as determined pursuant to proposed subsection 181.2(3) of the Act and that deferred foreign exchange losses do not form part of a corporation's investment allowance as determined pursuant to proposed subsection 181.2(4) of the Act.
We would note that it is not the deferred foreign exchange gain or loss which is a component of the taxable capital calculation or the investment allowance calculation. The amount of any reserve which is claimed in relation to any foreign exchange gain not deducted in computing income under Part I of the Act is relevant in determining taxable capital and the carrying value of any deferred foreign exchange loss is relevant in determining the investment allowance.
It is our view that the definition of reserve in proposed section 181 of the Act would include a deferred foreign exchange gain and therefore would be included in the calculation of taxable capital pursuant to proposed paragraph 181.2(3)(b) of the Act.
We agree with your view that there is no provision in proposed subsection 181.2(3) of the Act which allows a deferred foreign exchange loss to be deducted in arriving at the amount of the borrower corporation's taxable capital. There is also no provision in proposed subsection 181.2(4) of the Act to include the deferred foreign exchange loss as a component of the borrower corporation's investment allowance.
We would advise that the opinions expressed above are based upon the amendments to the Income Tax Act proposed in Bill C-28 as passed by the House of Commons on December 20,1989 and those published by the Department of Finance in July, 1990. Further, while we trust that our comments are of assistance to you, they do not constitute an advance income tax ruling and are therefore not binding upon the Department in respect of a particular situation.
Yours truly,
for Director Financial Industries DivisionRulings Directorate