Canada Case Law

Canada v. Bank of Montreal

Court

Federal Court of Appeal

The court held that, under the version of subsection 39(2) in force in 2010, a loss on disposition of shares that was solely attributable to foreign exchange fluctuation is properly deemed to be a loss from disposition of foreign currency; consequently subsection 112(3.1), which only applies to losses from disposition of shares, would not have reduced the loss even if only one class of shares had been issued, so no tax benefit arose and GAAR s.245 did not apply; appeal dismissed.

Source excerpt

• General anti-avoidance rule (gaar)
• Subsection 39(2) of income tax act
• Subsection 112(3.1) of income tax act
• Capital gains and losses
• Foreign currency translation and deeming rules

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Agnico-Eagle Mines Limited v. The Queen

Court

Tax Court of Canada

The court held that for the conversions the true consideration for shares was the issue price received at issuance (US$14 per share / US$1,000 per debenture) and that under s.261(2) the relevant amount arose at issuance, so translating both issuance and conversion at the issuance date produced no foreign exchange gain; by contrast the redemption was governed by the Indenture's Redemption Price (US$1,022.68) and translated at redemption produced a deemed capital gain under s.39(2).

Source excerpt

• Foreign exchange gains
• Convertible debentures
• Deemed capital gains
• Conversion vs redemption
• Translation of foreign currency
• Section 39(2)

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Saskferco Products Inc. v. The Queen

Court

Tax Court of Canada

Hedge accounting cannot be applied to alter the translation of sales revenue for tax purposes; revenues must be translated at the exchange rate when earned, and foreign exchange losses on the U.S.-denominated project debt are capital losses because they take their character from the indebtedness under established precedent, therefore the assessments are upheld and the appeal dismissed.

Source excerpt

• Characterization of foreign exchange gains and losses
• Hedge accounting
• Translation of foreign currency revenues
• Capital vs income characterization

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Fraser v. Houston et al.

Court

Supreme Court of British Columbia

Application on costs after judgment in a settlement dispute: special costs were refused, affidavit-strike relief was denied, and third party costs were awarded to David Rennie.

• Breach of settlement agreement
• Special costs
• Foreign money claims act
• Court order interest act
• Striking affidavits
• Third party costs

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Imperial Oil Limited v. The Queen

Court

Tax Court of Canada

Paragraph 20(1)(f) is to be applied by computing the discount formula in the currency of the obligation and converting the resulting deductible amount into Canadian dollars (or alternatively by converting all elements at the redemption rate); only C$1,548,325 is deductible under s.20(1)(f)(i), nothing under s.20(1)(f)(ii), and the balance C$26,283,387 is a capital loss under s.39(2).

Source excerpt

• Paragraph 20(1)(f)
• Subsection 39(2)
• Foreign exchange losses
• Statutory interpretation
• Capital vs income distinction

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Tip Top Tailors Limited v. The Minister of National Revenue

Court

Supreme Court of Canada

The Supreme Court of Canada held that a foreign-exchange profit from repaying a sterling overdraft used in trade was taxable business income, with Cartwright J. dissenting.

• Profit from business
• Capital vs revenue
• Dealings in foreign exchange
• Overdraft financing
• Definition of business (s.127(1)(e))
• Income-tax

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Rothchild v. Duffield

Court

Supreme Court of Canada

The Supreme Court of Canada held that the broker’s mandate was not complete on July 3 and that the client had to bear the exchange loss arising before final settlement.

• Mandate
• Mandatary liability
• Settlement finality
• Exchange rate risk
• Broker duties
• Negligence

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Barthelmes v. Bickell

Court

Supreme Court of Canada

The Supreme Court of Canada held that a Toronto broker had to account to its client in U.S. funds for profits realized on New York stock transactions, absent contrary agreement or binding custom.

• Broker-client relationship
• Margin trading
• Currency of settlement
• Market custom
• Accounting by agent
• Entitlement to exchange

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