Budget 2016: Debt Parking Rules Expanded To Address Foreign Currency Denominated Debts

In Budget 2016, the Government proposed new anti-avoidance rules to close a loophole that the Government believes permits taxpayers to "park" debt denominated in a foreign currency with a party with which it does not deal at arm's length, instead of repaying it, in order to avoid realizing accrued foreign exchange gains and losses.

Background

For Canadian tax purposes, all amounts relevant to the computation of taxable income must generally be converted to, and reported in, Canadian dollars. As a consequence, a taxpayer may realize a gain or a loss on the repayment of a debt denominated in a foreign currency when the value of the foreign currency changes relative to the Canadian dollar.