Canada: New method for determining foreign exchange gains, convertible debentures

Canada: Determining foreign exchange gains

Asset managers across Canada may be affected by a recent decision of the Federal Court of Appeal.

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The Federal Court of Appeals 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 appeals court 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. The appeals court decision effectively reverses the methodology used by the Tax Court of Canada. 

The case is: Agnico-Eagle Mines Ltd. (Agnico) v. The Queen.

KPMG observation

Investors and investment funds that hold convertible securities need to reconsider their current methodology for calculating FX gains and losses, and determine that this methodology is properly reflected in any related tax adjustment.

 

Read a November 2016 report prepared by the KPMG member firm in Canada

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