Foreign currency tax tips

Both businesses and individual taxpayers may find themselves in situations where foreign currency transactions are required to be converted into Canadian dollars. This may be an almost daily occurrence for businesses involved in cross-border work. Individual taxpayers may have to take into account foreign currency rates on such diverse situations as the calculation of a gain or loss on an investment or the receipt of regular payments, such as pensions, from a foreign country.

You need not use the Bank of Canada rate in determining the conversion rates. There is both a current and historic converter from scores of other currencies to Canadian dollars at http://www.bankofcanada.ca/en/ rates/converter.html.

There is nothing in the Income Tax Act or the CRA's published material that requires you to use the Bank of Canada annual average exchange rate to convert your pension and investment income to Canadian dollars.


Page 14 of the 2006 General Income Tax and Benefit Guide indicates that you may use the exchange rate that was in effect on the day you received the foreign income. Interpretation Bulletin IT-270R3, Foreign Tax Credit, also indicates that investment income may be converted at the exchange rate that applied on the date it was received. Pension income may also be converted at that exchange rate.

However, if the amounts were paid at various times throughout the year, you may use the Bank of Canada annual average exchange rate as a convenience.

Of course, as we have pointed out in the past, there is nothing to stop one from trying each rate on for size and only after determining what produces the best result, making a choice. In the worst-case scenario, all that can happen is that you might be called upon to justify that decision.

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On a different aspect of foreign exchange, we have been finding more foreign hotels have been asking us, when we tender our credit card, whether we would like to pay in local currency or Canadian dollars. This generally is a huge trap for the unwary.

In August in London, our hotel would have converted the bill to Canadian dollars at a rate of $2.40 to the pound. We insisted in paying in pounds sterling and the subsequent VISA statement showed the conversion by our bank at $2.19!

An offer of the convenience of having your credit card debited based on Canadian dollars is just one more way hotels can rip off unwary travellers.

Copied from: Arthur Drache, Financial Post