I-3 - Taxation Act

Section 21.4.25 Disposition versions

2010-04-20

21.4.25. If a taxpayer has, in a taxation year that is a functional currency year or a reversionary year of the taxpayer, made a particular payment on account of the principal amount of a pre-transition debt of the taxpayer, the following rules apply:

(a)  if the taxpayer would have made a gain—or, if the pre-transition debt was not on account of capital, would have had income—(in the second paragraph referred to as the “hypothetical gain or income”) attributable to a fluctuation in the value of a currency if the pre-transition debt had been settled by the taxpayer’s having paid, immediately before the end of the taxpayer’s last Canadian currency year, an amount equal to the principal amount (expressed in the currency in which the pre-transition debt is denominated, which currency is in this section referred to as the “debt currency”) at that time, the taxpayer is deemed to make a gain or to have income, as the case may be, for the taxation year equal to the amount determined by the formula

A × B / C; and

(b)  if the taxpayer would have sustained a loss—or, if the pre-transition debt was not on account of capital, would have had a loss—(in this subparagraph referred to as the “hypothetical loss”) attributable to a fluctuation in the value of a currency if the pre-transition debt had been settled by the taxpayer’s having paid, immediately before the end of the taxpayer’s last Canadian currency year, an amount equal to the principal amount (expressed in the debt currency) at that time, the taxpayer is deemed to sustain or to have a loss in respect of the particular payment for the taxation year equal to the amount that would be determined by the formula in subparagraph a if the reference to “hypothetical gain or income” in subparagraph i of subparagraph a of the second paragraph were read as a reference to “hypothetical loss”.

In the formula in subparagraph a of the first paragraph,

(a)  A is

i.  if the taxation year is a functional currency year of the taxpayer, the amount of the hypothetical gain or income converted to the taxpayer’s elected functional currency using the relevant spot rate for the last day of the taxpayer’s last Canadian currency year, and

ii.  if the taxation year is a reversionary year of the taxpayer, the amount determined under subparagraph i converted to Canadian currency using the relevant spot rate for the last day of the taxpayer’s last functional currency year;

(b)  B is the amount of the particular payment (expressed in the debt currency); and

(c)  C is the principal amount of the pre-transition debt at the beginning of the taxpayer’s first functional currency year (expressed in the debt currency).

2010, c. 5, s. 11.