Halwachs Estate – Court of Quebec passes on the correct FX translation method to be applied to the bank account variation method

The ARQ assessed the taxpayer for unreported foreign source income for his 2008 to 2010 taxation years based inter alia on the variation in the value of his US-dollar bank accounts held in Switzerland at the end of each year as compared to the previous year end (the “variation method”).

In the taxpayer's appeal to the Court of Quebec, the Court in its 2022 decision in Halwachs pronounced inter alia on how such US-dollar amounts should be translated into Canadian dollars. The ARQ subsequently assessed to give effect to this judgment. The taxpayer then brought this appeal of such assessment of his 2009 taxation year on the grounds that the ARQ had not correctly applied the Court’s FX-translation directions.

The ARQ compared the bank balances of the taxpayer on December 31, 2009, of U.S.$2.90 million to that of U.S.$2.60 million on December 31, 2008, and applied the exchange rate on December 31, 2009, of 1.05, to this difference to arrive at an addition to the taxpayer’s income of Cdn.$273,000. The taxpayer, however, translated the December 31, 2009 balances of U.S.$2.90 million into Canadian dollars using the December 31, 2009 exchange rate of 1.05, and then compared this to the application of the December 31, 2008 exchange rate of 1.22 to the bank balances on that date of U.S.$2.60 million, to arrive at a loss of Cdn.$174,000.

Breault JCQ found that the taxpayer's method correctly applied the Court of Quebec's findings on the appropriate foreign exchange translation method, stating:

[T]he ARQ did not take into account or incorporate at all the exchange rate that existed at the end of 2008 ($1.22). Instead, it netted the total value of investments in 2009 and 2008 in USD, then applied a single exchange rate, that of 2009 ($1.05), to the net result of this operation.

This approach … not only created a sort of distortion in the application of the variation method but is also inconsistent with the very nature of that method.

Neal Armstrong. Summary of Succession de Halwachs c. Agence du revenu du Québec, 2026 QCCQ 3475 under s. 261(2).