New FX Methodology for Convertible Securities | KPMG | CA

Asset Managers — New FX Methodology for Convertible Securities

New FX Methodology for Convertible Securities

Asset managers across Canada may be affected by a recent court decision in Agnico-Eagle Mines Ltd. (Agnico) v. The Queen.


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In this case, the Federal Court of Appeal (FCA) set out a methodology for determining foreign exchange (FX) gains and losses on the conversion of U.S.-dollar denominated convertible debentures into shares. The method that the FCA used for computing gains or losses for these types of corporate actions in this case may differ from the method currently used by many asset managers.

This decision effectively reverses the methodology used by the Tax Court of Canada (TCC) in an earlier decision for this taxpayer. As a result, investors and investment funds that hold convertible securities should reconsider their current methodology for calculating FX gains and losses, and ensure that this methodology is properly reflected in any related tax adjustment.

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