A Canadian public company (Canco), which carries on business primarily in Canada, incorporates Subco to hold its shares of a U.S. controlled foreign affiliate and to assume control of the financing of the affiliate, which will occur in U.S. dollars. Subco maintains its records and books of account in US dollars. Is Subco precluded from reporting its Canadian tax results in US dollars because its financial results are consolidated with those of Canco, whose reporting currency is the Canadian dollar?
CRA indicated that satisfaction of these two conditions was required:
1) The US dollar is the business currency of Subco (that is, the primary currency in which its transactions occur). In this respect, we expect that Subco would raise its capital in US dollars and derive the majority of its revenues in US dollars.
2) Subco's balance sheet and income statement are prepared in US dollars for the purposes of presenting the financial condition of the corporation to its shareholder and, where applicable, its creditors.
Respecting the second condition, CRA stated that "financial reporting must be the primary reason that the books and records are maintained in a qualifying currency," so that maintaining them in a qualifying currency without this purpose is not sufficient.