Observations and Issues in respect of Section 261

Rules Relating to Functional Currency Reporting

In this submission, PwC provides commentary and requests modifications to the proposed amendments to the Income Tax Act's section 261. PwC's submission comments on several matters relating to the Proposals in section 261 including eligibility criteria, application to entities other than corporations, transition rules, determination of amounts payable, anti-avoidance rules, timing of currency translation and other miscellaneous matters. More particularly, PwC comments and makes recommendations on:

  • The further refinement of the definition and examples around the concept of "primary currency"
  • Clarification around the time to file an election as may not be possible for a newly incorporated company to file election at least six months before end of year
  • Extending the election to taxpayers other than corporations resident in Canada (for example, income trusts, non-resident corporations)
  • Refinements to the new rule around corporations that are members of a partnership
  • Revising the process for conversion of debts denominated in a third currency
  • Modifications to the relevant conversion spot rate for purposes of calculating the installment base of a taxpayer
  • Expanding and refining the "one of the main purposes" test in ss.261(18) as well as the "no purpose test" in subsections 261(20) and (21) in relation to the new anti-avoidance rules
  • Clarification of the definition of "relevant spot rate" in para.261(2)(b)
  • Other related provisions including the definition of "Canadian tax results", the use of "that day" in ss.261(4) and the translation issue in ss.261(8)

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.

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