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Filing your GST/HST Return – Foreign Currency Guidelines

15/06/2017


If you are a Canadian company dealing with U.S. dollars or other foreign currencies invoices, it’s important to understand how GST / HST is reported when you file your GST/HST return to the CRA.

The Excise Tax Act of Canada sets out the rules for GST/HST, and section 159 of the Act clarifies the rules surrounding foreign currency transactions. Where the consideration for a supply is expressed in a foreign currency, the value of the consideration shall be computed on the basis of the value of that foreign currency in Canadian currency on the day the tax is payable or on such other day as is acceptable to the Minister.

The CRA requires that the GST be computed on the Canadian dollar converted value. The following days are acceptable:

  • the day the consideration for the supply is paid;
  • the day the foreign currency was acquired; and
  • the average rate of exchange for the month in which tax is payable.

More often than not, the day the tax is payable is the invoice date. But what happens when your customer later pays in foreign currency and the exchange rate has changed? The Canadian dollars you actually receive may be greater or lesser than the amount you must pay the government. Because of this, we recommend our clients to use the average rate of exchange for the month in which the invoice is used.

The CRA also gives guideline under Policy 222 on acceptable source of foreign exchange to Canadian dollar for s.159 purposes. A person may only use the rate of exchange from:

  • the source used for an actual conversion (i.e. foreign currency is exchanged for Canadian dollars);
  • the source the person typically uses for actual conversions;
  • a Canadian chartered bank;
  • the Bank of Canada; or
  • the rate provided by the Customs Branch of the Department for purposes of converting the value for duty of imported goods.

For GST / HST reporting purposes, the source of foreign exchange must be used for an actual conversion such as a Canadian chartered bank, the Bank of Canada, etc. We recommend our clients to use the Bank of Canada exchange rates as they are easy to find on their website and we have not had any issues on audits with the CRA where we use this source.

On the whole, it is recommended to use the Average Monthly Exchange Rate as posted on the Bank of Canada website to convert GST / HST collectible or collected amount, the related sale where foreign currency is issued, and to report the Canadian equivalent on the GST / HST return. With that being said, regardless of which route you choose, you must apply this method consistently for a minimum of one year. If after a year, you would like to use a different method, you must make a request in writing to the CRA, which they may or may not approve.

It’s also important to note that the CRA requires businesses to maintain sufficient documentary evidence regarding the exchange rate on the date of conversion, the method used, and the calculations for the net tax as filed on your GST/HST return. Use a tax professional to determine which conversion method best suits your company.

If your organization purchased goods and / or services and the supplier invoice is in foreign currency, the Average Monthly Exchange Rate per the Bank of Canada website should also be used to claim the input tax credits​ (ITCs).

For more information on how to effectively implement strategies that take into account any foreign currencies coming into your business, contact Anny Joshua, CPA, CA at 416.596.1711 or [email protected].