Acceptable Exchange Rate Sources for Converting the Value of Consideration Expressed in Foreign Currency to a Value in Canadian Currency for Purposes of Section 159 of Excise Tax Act (the "ETA")

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-222

DATE OF ISSUE

December 10, 1998

SUBJECT

Acceptable exchange rate sources for converting the value of consideration expressed in foreign currency to a value in Canadian currency for purposes of section 159 of the Excise Tax Act(the "ETA").

LEGISLATIVE REFERENCE(S)

Section 159, Value in Canadian currency

NATIONAL CODING SYSTEM FILE NUMBER(S)

11755-13

EFFECTIVE DATE

January 1, 1991

TEXT
Issue and Decision:

To convert from foreign currency into Canadian currency for purposes of Part IX of the Excise Tax Act, a person may only use the rate of exchange from:

  • the source used for an actual conversion (i.e. foreign currency is exchanged for Canadian dollars);
  • the source the person typically uses for actual conversions;
  • a Canadian chartered bank;
  • the Bank of Canada; or
  • the rate provided by the Customs Branch of the Department for purposes of converting the value for duty of imported goods.

When a source other than the source used for an actual transaction is selected, that source must be used consistently and for a reasonable period of time (such as one year).

If a person must pay a premium to obtain foreign currency from a particular source for a particular foreign currency denominated transaction, any additional costs incurred associated with obtaining that rate must be included when translating the foreign currency into Canadian currency.

The use of a particular exchange rate source must be supported with appropriate documentation.

SAMPLE RULINGS

Sample Ruling 1

Our understanding of the facts and transactions is as follows:

Statement of Facts

1. Detroit Inc., a GST/HST registered company located in the United States, receives and submits invoices in foreign denominations and also receives and makes payments in foreign currencies.

2. In its day to day dealings with suppliers and customers, the company converts its foreign currency transactions based on the exchange rates charged by the local American bank with whom the company does its usual banking business.

3. Some of the company's transactions are in foreign currency which have not been converted to Canadian currency. The company settles these transactions with the foreign currency on hand.

Ruling Given

Detroit Inc. is eligible to use the rate provided to the company by the bank for its currency exchanges, both the actual transactions and those transactions settled in the foreign currency, when reporting amounts for GST/HST purposes.

Rationale

The rate used by Detroit Inc. reflects the actual rate charged to the company by the bank. For those transactions settled in the foreign currency, the rate used by the company reflects the source they typically use for exchange transactions.

Sample Ruling 2

Our understanding of the facts and transactions is as follows:

Statement of Facts

1. Zuki International Inc., a GST/HST registered company located in Canada, is making a major purchase of capital assets from a foreign supplier for delivery in six months. The terms of settlement are in a foreign currency.

2. In order to protect its foreign currency exchange rate, Zuki will be signing a foreign exchange contract with a financial institution. By doing so, it will be able to obtain the foreign currency at a rate set by contract, while paying a premium for obtaining the contract.

Ruling Given

Zuki International Inc. is eligible to use the rate as provided in the contract. However, when using the rate of exchange as provided in the contract to determine a value of the consideration in Canadian currency, the costs of acquiring the contract must be included.

Rationale

The rate used plus the cost of the foreign exchange contract reflects the actual cost to the company in converting foreign currency to Canadian currency.

Sample Ruling 3

Our understanding of the facts and transactions is as follows:

Statement of Facts

1. Worldwide Inc., a GST/HST registered company located in Canada, receives and submits invoices in foreign denominations and also receives and makes payments in foreign currencies.

2. When required (e.g., when making a payment in foreign currency), Worldwide Inc. converts its foreign currency transactions using the exchange rates obtained from a Canadian chartered bank.

3. Worldwide Inc. subscribes to Market News Service Database. Market is a database service that tracks currency exchange rates on the interbank market and reports rates provided by the Bank of Canada and the average rates by Canadian chartered banks. It does not actually buy and sell currency.

4. For purposes of reporting for GST/HST, Worldwide Inc. would like to use Market's currency exchange rates for converting all of its foreign currency transactions.

Ruling Given

Worldwide Inc. is not eligible to use Market as its source for currency exchange rates.

Rationale

The rates provided by Market do not reflect the actual exchange rate used by Worldwide Inc. nor is it one of the acceptable sources to be used when an actual rate is not chosen.

Where Worldwide Inc. takes the exchange rate obtained from Market to its banking institution and is able to obtain Canadian currency at that rate, Worldwide Inc. would be allowed to use the rate provided by its banking institution.

Date modified: