Question
Consider a situation where a US company owns one or more Canadian holding companies, which have no active operations themselves but which, in turn, own one or more Canadian operating subsidiaries. The Canadian holding companies maintain their accounting records in US dollars, which is in accordance with GAAP. The Canadian operating subsidiaries are not US-dollar reporting entities.
- Is the fact that the Canadian holding company’s books and records are kept in US dollars sufficient to elect pursuant to subsection 261(3)?
- If the answer is no, what other factors would be considered? For example, does the fact that the Canadian holding company holds other assets (such as shares and loans) that are US-dollar-denominated assets in addition to the shares of the Canadian operating company change the answer?
- In the course of reviewing the eligibility to elect under section 261, what procedures will the CRA perform? Will those procedures be different de pending on whether the company (or the ultimate parent of the company) is listed on a stock exchange or is privately owned?
Response
A Canadian-resident corporation (other than an investment corporation, a mortgage investment corporation, or a mutual fund corporation) that is required under applicable financial reporting principles to maintain all of its records and books of account in US dollars should generally be eligible to elect to report its Canadian tax results in US dollars.
The CRA may, in the course of an audit, review the eligibility requirements of a taxpayer to report its Canadian tax results in a qualifying currency. At this time, no specific procedures have been adopted to test a particular taxpayer’s eligibility to report in a qualifying currency; however, any procedures that are adopted would be expected to apply equally to all corporations.