Comments and requested modifications to Proposed Section 261 – Rules relating to Functional Currency Reporting

In this submission PwC acknowledges that the proposed functional currency reporting rules are an important and welcome initiative that can have significant benefits for Canadian corporations. However, we also stress the need for corporations to carefully consider the rules’ implications before applying them.

The primary objective of our submission is to provide more certainty when applying the rules and to increase the tax system’s efficiency and effectiveness. These modifications would provide a more symmetrical measurement of foreign exchange gains and losses under the proposed rules and increase the fairness in respect of the application of these rules via the foreign exchange provisions of the Income Tax Act.

In this submission, PwC makes recommendations in respect of the following matters:

Eligibility for the election – paragraph 261(3)(b)
Greater certainty with respect to application of the definition “functional currency”
Amendments to definition of “functional currency” to accommodate situations where consolidated financial statements are not prepared
Exemptions in subsection 261(16) & (17) be extended
Modifications to paragraph 261(6)(a) in respect of measurement of unrealized foreign exchange gains or losses in respect of debt obligations
Extension of the time for making the election

This submission reiterates taxpayers’ needs for clarity and certainty when applying the tax rules and that without such certainty, the rules would fail to serve the people they were meant to serve. PwC maintains that our comments and recommendations aim to improve the legislation and allow the government to meet its goal of increasing the effectiveness and fairness of the tax system.