D.Y. Dalphy (613) 957-2117
SEP 8 1988
Dear Sirs:
This is in reply to your letter of November 10, 1987 in which you requested our opinion on the application of subsection 18(4) of the Income Tax Act (the "Act") where the debt to specified non-residents is denominated in a currency other than Canadian dollars.
Generally speaking when debt owing to specified non-residents is payable in foreign currency it has to be converted to Canadian dollars, for purposes of subparagraph l8(4)(a)(i) of the Act, using the combination of variables (amount of debt expressed in the foreign currency and foreign exchange rate) that results in the amount calculated, as being the greatest amount owing at any time in the year. This may require the taxpayer to make many separate calculations for the year. Consequently, the Department will usually accept, for purposes of subparagraph 18(4)(a)(i) of the Act, any reasonable attempt (taking into account fluctuations, if any, in the amount of debt payable and changes in the rate of exchange during the year) by the taxpayer to approximate the amount.
We trust this information will be of assistance to you.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch