Imperial Oil Limited v. The Queen, 2004 DTC 2377, 2004 TCC 207, aff'd on different grounds 2004 DTC 6044, 2004 FCA 36 -- summary under Subsection 39(2)

The taxpayer issued U.S. dollar debentures in 1989 at a discount of 1.199% at which time the U.S. dollar had a value of Cdn.$1.1766 and redeemed a portion of the debenture in 1999 at which time the U.S. dollar had a value of Cdn.$1.48192. Miller J. found that the amount deductible under s. 20(1)(f) should be computed first in U.S. dollars and then converted to Canadian dollars at the 1999 exchange rate, with the balance of the loss treated as a capital loss under s. 39(2). Under the scheme of the Act that loss which is deductible on income account is specifically excluded from the scope of s. 39(2). Furthermore, the Gaynor principle (that amounts were to be converted into Canadian dollars when they first arose) only applied to the computation of capital gains or losses, and not the computation of deductions on income account. Accordingly, it was appropriate to calculate the foreign exchange loss under s. 39(2) only after computing a deduction under s. 20.