Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 300-7-10

TAX ON SUPPLIES
VALUE OF SUPPLY
FOREIGN CURRENCY

Ottawa, March 15, 1994

This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST district office for additional information. If you are located in the Province of Quebec, please contact the ministère du Revenu du Québec (MRQ) for additional information.

This memorandum explains how to determine the value of consideration for a supply in Canadian currency where the consideration is expressed in foreign currency. Definitions and departmental interpretations to explain specific terms are provided at the end of this memorandum.

LEGISLATIVE AND OTHER REFERENCES

Excise Tax Act þ sections 159, 169, subsections 123(1), 152(1), 168(1)

TABLE OF CONTENTS

Conversion of Foreign Currency 2

General Rule 2

Alternative Days for Conversion of Foreign Currency 3

Day Consideration Is Paid 3

Example 3

Day Foreign Currency Acquired 4

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Example 4

Average Exchange Rate for Month in which Tax is Payable in Respect of the Supply 4

Example 4

Administration 5

Definitions and Interpretations 6

CONVERSION OF FOREIGN CURRENCY

General Rule

1. Where the consideration for a supply is expressed in foreign currency, the value of the consideration shall be calculated based on the value of that foreign currency in Canadian currency. The determination of the value of the consideration in equivalent Canadian currency is made on:

(a) the day that tax is payable; or

(b) such other day as is acceptable to the Minister.

2. Consideration expressed in a foreign currency must therefore be converted into Canadian currency using either the exchange rate on the day tax is payable or on such other day as is acceptable to the Minister.

3. The general rule in subsection 168(1) of the Act provides that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.

4. Consideration or a part thereof for a taxable supply is deemed to become due on the earliest of:

(a) the day the supplier first issues an invoice in respect of the supply and the date of that invoice;

(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and

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(c) the day that the recipient is required to pay that consideration or part pursuant to an agreement in writing.

5. For additional information on the time of liability with respect to the payment of tax, refer to GST Memorandum 300-6, Time of Liability.

ALTERNATIVE DAYS FOR CONVERSION OF FOREIGN CURRENCY

6. Section 159 of the Act allows for alternative days for computing the value of consideration for a supply when expressed in a foreign currency, other than the conversion to Canadian currency on the day that tax is payable. The following days are also acceptable to the Minister for determining the value of the consideration for a supply in Canadian currency (these are further explained in paragraphs 7 to 9 of this memorandum):

(a) the day the consideration for the supply is paid;

(b) the day the foreign currency was acquired; and

(c) the average rate of exchange for the month in which tax is payable.

Day Consideration Is Paid

7. The value of the consideration in equivalent Canadian currency may be calculated on the day payment in respect of a supply is received by the supplier (i.e., the day the consideration is paid by the recipient).

Example

A registrant makes a taxable supply and issues an invoice in U.S. dollars on April 1, 1993. The payment of the amount invoiced is made in U.S. dollars and received by the registrant on May 5, 1993. Using this method, the supplier converts the consideration expressed in foreign currency to Canadian currency based on the rate of exchange in effect on May 5, 1993. The following table illustrates the transactions.

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Day Foreign Currency Acquired

8. The value of the consideration could be converted to equivalent Canadian funds using the exchange rate on the day the foreign currency was acquired.

Example

On May 14, 1993, an American GST registrant invoices a Canadian registrant, in U.S. dollars, for a taxable supply the American registrant made. The Canadian registrant receives the invoice and obtains a money order for U.S. funds on June 1, 1993. The recipient uses the rate of exchange in effect on this day (1.20) to determine the value of the consideration and computes the tax payable as $84 ($1,000 U.S. x 1.20 x 7%) which may, pursuant to the terms and conditions of section 169 of the Act, be claimed as an input tax credit.

Average Exchange Rate for Month in which Tax is Payable in Respect of the Supply

9. The value of the consideration in equivalent Canadian currency may be determined using the average rate of exchange for the month in which the tax is payable.

Example

Two supplies are made to a recipient in the month of June, one for $50 and the other for $100. A invoice for both supplies, expressed in U.S. dollars, is issued on July 9, 1993. The value of the consideration for the supply which was expressed in U.S. dollars is converted using the average rate of exchange for the month of July, which is 1.22. The recipient uses the average rate of exchange for the month of July to determine the value of consideration at $183 in Canadian funds ($150 x 1.22). The total tax payable by the recipient on the supplies would then be $12.81 ($183 x 7%).

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Administration

10. The supplier and the recipient of the supply are not required to use the same method of conversion to determine the value of the consideration for the supply.

11. Any method used to determine the value of the consideration in Canadian currency, other than the use of the exchange rate in effect on the day the tax is payable, and the methods listed in this memorandum, must be submitted in writing to the Minister for - approval prior to its application.

12. The Minister requires that, where a method of determining the Canadian dollar equivalent of the value of the consideration is used (other than using the exchange rate on the day the tax is payable), that method must be applied consistently for at least one year from the end of the reporting period in which the method was first used.

13. Suppliers may invoice in foreign currency and recipients may make payments to suppliers in foreign currency.

14. If the method chosen to convert foreign currency to Canadian currency results in the date of conversion occurring on a weekend or a holiday, the rate of exchange for the previous business day should be used.

15. Foreign currency is to be converted to Canadian currency using either a Canadian chartered bank exchange rate, the Bank of Canada exchange rate or the exchange rate included in the Revenue Canada, Customs, Excise and Taxation, B Memorandum þ Currency.

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16. Although the examples in this memorandum use U.S. dollars, these methods are applicable for converting any foreign currency for purposes of section 159 of the Act.

17. Whatever method of conversion is used, sufficient documentary evidence must be maintained with respect to the exchange rate in effect on the date of conversion. As well, suppliers must maintain sufficient documentation and books and records to support whatever method is used. The books and records are required to be in an appropriate form and must contain sufficient information to allow determination of the amount of tax to be paid, collected, deducted or refunded.

DEFINITIONS AND INTERPRETATIONS

The following are either definitions which have been taken from the Excise Tax Act or represent departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act as amended by S.C. 1993, c.27 (Bill-112);

"consideration" includes any amount that is payable for a supply by operation of law;

"Minister" means the Minister of National Revenue;

"money" will have its ordinary meaning but does not include:

(a) currency with a fair market value which exceeds its stated value as legal tender in the country it was issued; and

(b) currency that is supplied or held for its numismatic value;

"recipient" of a supply of property or a service means

(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,

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(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration, and

(c) where no consideration is payable for the supply,

(i) in the case of a supply of property by way of sale, the person to whom the property is delivered or made available,

(ii) in the case of a supply of property otherwise than by way of sale, the person to whom possession or use of the property is given or made available, and

(iii) in the case of a supply of a service, the person to whom the service is rendered;

"tax" means the Goods and Services Tax payable under Part IX of the Act.

NOTE: This memorandum is not a legal document. It contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. If interpretation problems occur, please refer to the legislation or contact the nearest Revenue Canada Excise office.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act, as amended by S.C. 1993, c. 27 (Bill C-112)

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.