On November 10, 2008, the Government of Canada released legislative proposals relating to functional currency tax reporting. If the requisite legislative conditions are met, a Canadian corporation will be permitted to elect to determine its Canadian tax results in the corporation's functional currency.
In simple terms, the election would be available to a Canadian corporation that uses the US dollar, the Euro, Pounds Sterling or the Australian dollar as its primary currency for financial reporting purposes. As a result of the election, the tax balance sheet of an electing taxpayer would be converted from Canadian dollars to the taxpayer's elected functional currency using the relevant spot rate for the last day of the taxpayer's last Canadian currency year. The election would apply to each taxation year of the taxpayer that ends on or after the day that is six months after the day on which the election is filed with the Government.
The option to elect into functional currency reporting was first proposed in 2006 and was meant to both ease compliance and to promote more representative financial reporting. The initial bill which included the implementation of the current functional currency tax reporting rules received Royal Assent on December 14, 2007. The November proposals aim at fixing various technical issues arising in the current legislation.
The November proposals will apply in respect of taxation years that begin after December 13, 2007, which is generally the period of application of the current rules.