A corporation resident in Canada throughout the tax year can elect to report in a functional currency. A functional currency is the currency of a country other than Canada that is both:
- the primary currency in which the corporation keeps its records and books of account for financial reporting purposes for the tax year
- a qualifying currency (currently the U.S. dollar, the Euro, the British pound, and the Australian dollar)
Effective for tax years starting after 2019, it was recommended that the Japanese yen be included in the definition of qualifying currency. A comfort letter from the Department of Finance was published to this effect. If you elect to report in Japanese yen, attach a copy of the comfort letter when you file Form T1296, Election, or Revocation of an Election, to Report in a Functional Currency.
You can elect to report in a functional currency if you meet all the following conditions:
- the corporation is not an investment corporation, a mortgage investment corporation, or a mutual fund corporation
- there is a functional currency for the first tax year to which the election, Form T1296, applies
- you have not filed or revoked a previous election to report in a functional currency
- you file the election on time
The election to report in a functional currency must be filed within the first 61 days of the tax year to which the election applies.
The exchange rate to be used when converting the amounts is specified in the definition of relevant spot rate in subsection 261(1) of the Income Tax Act. Use the Bank of Canada daily exchange rate, to 4 decimal places, of the particular day. If no rate is quoted, use the rate from the closest preceding day for which a rate is quoted.
For more information, see section 261 of the Income Tax Act and Income Tax Folio S5-F4-C1, Income Tax Reporting Currency.
- Election, or revocation of an election, to report in functional currency
Instructions for Form T1296.
- Making instalment payments – Functional currency
Your instalment options.
- Payment on balance-due day
Converting your payment to Canadian currency.
- Completing your T2 schedules and elections – Functional currency
Special instructions for schedules and elections.
- Completing your T2 return – Functional currency
Information on certain lines, fixed amounts, and exchange rates.
- Associated corporation
Reporting procedures for associated corporations.
- Carryforward and carryback
Find out which exchange rate to use when converting amounts.
For all questions pertaining to the results of a functional currency assessment or for general questions related to filing an election or functional currency return, contact Business Enquiries at 1-800-959-5525. Please tell us that your question pertains to functional currency so that we may address your question accurately.
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