Income Tax Act — I-3.3 261
iately before the end of its last Canadian currency year, an amount equal to the principal amount (expressed in the currency in which the pre-transition debt is denominated, which currency is referred to in this subsection as the “debt currency”) at that time, the taxpayer is deemed to make a gain or to have income, as the case may be, for the taxation year equal to the amount determined by the formula A × B/C where A is (i) if the taxation year is a functional currency year of the taxpayer, the amount of the hypothetical gain or income converted to the taxpayer’s elected functional currency using the relevant spot rate for the last day of the taxpayer’s last Canadian currency year, and (ii) if the taxation year is a reversionary year of the taxpayer, the amount determined under subparagraph (i) converted to Canadian currency using the relevant spot rate for the last day of the taxpayer’s last functional currency year, B is the amount of the particular payment (expressed in the debt currency), and C is the principal amount of the pre-transition debt at the beginning of the taxpayer’s first functional currency year (expressed in the debt currency); and (b) where the taxpayer would have sustained a loss — or, if the pre-transition debt was not on account of capital, would have had a loss — (referred to in this paragraph as the “hypothetical loss”) attributable to a fluctuation in the value of a currency if the pre-transition debt had been settled by the taxpayer’s having paid, immediately before the end of its last Canadian currency year, an amount equal to the principal amount (expressed in the debt currency) at that time, the taxpayer is deemed to sustain or to have a loss in respect of the particular payment for the taxation year equal to the amount that would be determined by the formula in paragraph (a) if the reference in the description of A in that paragraph to “hypothetical gain or income” were read as a reference to “hypothetical loss”. Debt parking — foreign exchange (10.1) For the purposes of determining a taxpayer’s gain under subsection (10), if at a particular time a pre-transition debt of the taxpayer (referred to in this subsection as the debtor ) that is denominated in a currency other than Canadian currency becomes a parked obligation (within the meaning assigned by subsection 39(2.02)), the debtor is deemed to have made, at that time, a particular payment on account of the principal amount of the debt equal to (a) if the debt has become a parked obligation at that particular time as a result of its acquisition by the holder of the debt, the portion of the amount paid by the holder to acquire the debt that can reasonably be considered to relate to the principal amount of the debt at the particular time; and (b) in any other case, the portion of the fair market value of the debt that can reasonably be considered to relate to the principal amount of the debt at the particular time. Determination of amounts payable (11) Notwithstanding subsections (5) and (7), for the purposes of applying this Act in respect of a functional currency year (referred to in this subsection as the “particular taxation year”) of a taxpayer, (a) for the purposes of determining the taxpayer’s payment obligations under paragraph 157(1)(a) or (1.1)(a), (i) the estimated amounts, each of which is described in subparagraph 157(1)(a)(i) or (1.1)(a)(i), that are payable by the taxpayer for the particular taxation year are to be determined by converting those amounts, as determined in the taxpayer’s elected functional currency, to Canadian currency using the relevant spot rate for the day on which those amounts are due, (ii) the taxpayer’s first instalment base (within the meaning assigned by subsection 157(4)) for the particular taxation year is to be determined (A) if the particular taxation year is the taxpayer’s first functional currency year, without reference to this section, and (B) in any other case, as if the taxes payable by the taxpa