I-3 - Taxation Act

Section 175.2.12 Disposition versions

2006-03-01

175.2.12. For the purposes of this section and sections 175.2.13 to 175.2.15,

“exchange date” in respect of a debt of a taxpayer that is at any time a weak currency debt means,

(a)  if the debt is incurred or assumed by the taxpayer in relation to borrowed money that is denominated in the final currency, the day that the debt is incurred or assumed by the taxpayer; and

(b)  if the debt is incurred or assumed by the taxpayer in relation to borrowed money that is not denominated in the final currency, or in relation to the acquisition of property, the day on which the taxpayer uses the borrowed money or the acquired property, directly or indirectly, to acquire funds that are, or to settle an obligation that is, denominated in the final currency;

“hedge” in respect of a debt of a taxpayer that is at any time a weak currency debt means any agreement entered into by the taxpayer

(a)  that can reasonably be regarded as having been entered into by the taxpayer primarily to reduce the taxpayer’s risk, in relation to payments of principal or interest in respect of the debt, of fluctuations in the value of the weak currency; and

(b)  that is designated by the taxpayer as a hedge in respect of the debt in prescribed form filed with the Minister on or before the 30th day after the day on which the taxpayer entered into the agreement;

“weak currency debt” of a taxpayer at a particular time means a particular debt in a foreign currency, in this section and sections 175.2.13 to 175.2.15 referred to as the “weak currency”, incurred or assumed by the taxpayer at a time, in this section and sections 175.2.13 to 175.2.15 referred to as the “commitment time”, after 27 February 2000, in relation to borrowed money or an acquisition of property, where

(a)  any of the following applies, namely,

i.  the borrowed money is denominated in a currency, in this section and sections 175.2.13 to 175.2.15 referred to as the “final currency”, other than the weak currency, is used for the purpose of earning income from a business or property and is not used to acquire funds in a currency other than the final currency,

ii.  the borrowed money or the acquired property is used, directly or indirectly, to acquire funds that are denominated in a currency, in this section and sections 175.2.13 to 175.2.15 also referred to as the “final currency”, other than the weak currency, that are used for the purpose of earning income from a business or property and that are not used to acquire funds in a currency other than the final currency,

iii.  the borrowed money or the acquired property is used, directly or indirectly, to settle an obligation that is denominated in a currency, in this section and sections 175.2.13 to 175.2.15 also referred to as the “final currency”, other than the weak currency, that is incurred or assumed for the purpose of earning income from a business or property and that is not incurred or assumed to acquire funds in a currency other than the final currency, or

iv.  the borrowed money or the acquired property is used, directly or indirectly, to settle another debt of the taxpayer that is at any time a weak currency debt in respect of which the final currency is a currency other than the currency of the particular debt and is deemed to be the final currency in respect of the particular debt;

(b)  the amount of the particular debt together with any other debt that would, but for this paragraph, be at any time a weak currency debt, and that can reasonably be regarded as having been incurred or assumed by the taxpayer as part of a series of transactions that includes the incurring or assumption of the particular debt, exceeds $500,000; and

(c)  either of the following applies, namely,

i.  if the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt is determined under a formula based on the value from time to time of a reference rate, other than a reference rate the value of which is established or materially influenced by the taxpayer, the interest rate at the commitment time, as determined under the formula as though interest were then payable, exceeds by more than two percentage points the rate at which interest would have been payable at the commitment time in the final currency if

(1)  the taxpayer had, at the commitment time, instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt, excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating, with those modifications that the difference in currency requires, and

(2)  interest on the equivalent amount of debt referred to in subparagraph 1 was payable at the commitment time, and

ii.  in any other case, the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt exceeds by more than two percentage points the rate at which interest would have been payable at the particular time in the final currency if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt, excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating, with those modifications that the difference in currency requires.

2004, c. 8, s. 32.