The taxpayer purchased inventory goods from its U.S. parent over the period 1939 to 1945 on credit, and deducted the Canadian-dollar equivalent of the U.S. dollar purchase prices as the goods were sold. In 1946, when the Canadian dollar had appreciated relative to the U.S. dollar, the U.S.-dollar indebtedness was paid through the issuance of common shares by the taxpayer.
The foreign exchange gain was fully taxable. "[T]he cost of exchange arising out of fluctuations in foreign currency is an ordinary expense in relation to foreign trade."