--- title: "Foreign Exchange Gains and Losses: CRA Folio S5-F4-C1" url: https://www.everstonecpa.com/blog/foreign-exchange-gains-losses-business-canada description: "Foreign exchange gains and losses: which rate to use, when a gain is income rather than capital, how receivables differ from cash, and the year-end step." type: guide updated: 2026-10-06 summary: "Canadian tax is reported in Canadian dollars, so every foreign-currency transaction produces a gain or loss when rates move between recording and settlement. Whether that amount is business income or a capital gain depends on what the underlying transaction was, not on the currency itself." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Foreign Exchange Gains and Losses Corporate tax and CRA # Foreign exchange gains and losses: *receivables, payables and the capital-versus-income line* By EverStone CPA · Updated September 2026 · 8 min read **Quick answer:** Canadian tax is reported in Canadian dollars, so every foreign-currency transaction produces a gain or loss when rates move between recording and settlement. Whether that amount is business income or a capital gain depends on what the underlying transaction was, not on the currency itself. **Paid or paying in US dollars?** We record FX gains and losses correctly and report them on the T2, with bookkeeping from $325 a month. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) The FX takes the character of the underlying transaction. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online) ## Key takeaways - Amounts are generally converted using the Bank of Canada rate for the day of the transaction. - FX on a trade receivable or payable follows the character of the underlying transaction — ordinary income. - FX on holding foreign currency itself is generally on capital account. - For individuals, net capital FX gains or losses of $200 or less in a year are not reported. - CRA accepts certain non-Bank-of-Canada rate sources if a defined list of conditions is met consistently. ## Where the gain comes from A Canadian business reports in Canadian dollars even when it trades in another currency, so time alone creates FX gains and losses. Invoice a US customer in June, get paid in September, and any rate movement between is a realized FX amount to recognize. Payables work the same way in reverse, as do foreign-currency bank balances: three exposures, not all taxed alike. **Invoicing or paying in US dollars?** Our monthly bookkeeping, from $325 a month, records each foreign-currency transaction at the right rate and tracks the realised and unrealised differences for the T2. See [our bookkeeping](https://www.everstonecpa.com/accounting-services), or [get a bookkeeping quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## Which rate to use Generally use the Bank of Canada spot rate for the transaction date, or the closest preceding quoted day if none was published. Where neither currency is Canadian, derive the rate from each currency’s Bank of Canada rate against the Canadian dollar. CRA accepts other sources only if they are widely available, verifiable, published independently and continuously, market-recognized, used under well-accepted business principles, used for the financial statements, and applied consistently each year. Bloomberg, Thomson Reuters and OANDA are named examples. An average rate over a period is sometimes allowed, useful for high volumes. See Income Tax Folio S5-F4-C1. Invoicing in US dollars? FX handled inconsistently in the bookkeeping is one of the most common sources of year-end adjustments. Getting the policy right once fixes it permanently. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [Bookkeeping services](https://www.everstonecpa.com/accounting-services) ## Receivables and payables: income account An FX gain or loss takes the character of its underlying transaction. A trade receivable comes from ordinary-course sales, so its FX movement is business income or loss, fully taxable or deductible, not half. Record the sale at the invoice-date rate and the receipt at the settlement-date rate; the difference is an FX gain or loss. Foreign supplier payables work the same way. That is why [accrual bookkeeping](https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada) matters more with foreign customers: the tax consequence sits between invoice and payment. Loans are a trap. FX on business-purpose borrowing generally follows income account; on a capital-account loan, it doesn’t. Foreign-currency shareholder or intercompany balances are fact-specific, and the software default is often wrong. ## Holding currency: capital account FX on capital transactions, like holding currency, is capital: keeping US dollars and converting later is not business. So FX losses on trade receivables and payables are fully deductible business losses, while FX losses on simply holding currency are capital losses. Individuals report only the net gain or loss above $200 for the year; at $200 or less there is nothing to report. That helps travellers and small foreign balances, but not corporations or income-account FX. ## Year-end and unrealized amounts Two year-end questions recur. First, unrealized FX on open balances: accounting usually retranslates monetary balances at the closing rate, but tax may not follow, and the difference is a reconciling item on the corporate return. The second is documentation. If CRA reviews the file, the question will be which rate was used and whether it was applied consistently, which is why choosing a rate source and staying with it is worth more than choosing the theoretically optimal one. This sits alongside the other reporting obligations that attach to foreign holdings, notably the [T1135 foreign income verification statement](https://www.everstonecpa.com/forms/t1135) where specified foreign property crosses the reporting threshold. ## Practical policy for a small business Set the policy once: choose and document a rate source; record foreign invoices at the transaction-date rate, not at [month end](https://www.everstonecpa.com/month-end-close); reconcile foreign accounts in their own currency and let the software post FX differences; and separate income-account and capital-account exposures in the chart of accounts. Exporters also face sales-tax rules for foreign customers; see [GST/HST on exports and non-residents](https://www.everstonecpa.com/blog/gst-hst-on-exports-and-non-residents). They arise from the same invoices, so review them together. Sources - [Canada Revenue Agency — T4037, Capital Gains (foreign currencies)](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html) - [Canada Revenue Agency — Income Tax Folio S5-F4-C1, Income Tax Reporting Currency](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-5-international-residency/series-5-international-residency-folio-4-foreign-currency/income-tax-folio-s5-f4-c1-income-tax-reporting-currency.html) - [Canada Revenue Agency — T4002, Self-employed Business and Professional Income](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online) before acting on anything here. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) Keep foreign accounts in their currency, revalued monthly: [bookkeeping for businesses that trade in US dollars](https://www.everstonecpa.com/monthly-bookkeeping-services). ### Keep reading [T1135 foreign income verification →](https://www.everstonecpa.com/forms/t1135) [GST/HST on exports →](https://www.everstonecpa.com/blog/gst-hst-on-exports-and-non-residents) [Cash vs accrual accounting →](https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada) FAQ ## Frequently asked questions about foreign Exchange Gains and Losses **Which exchange rate should I use?** Generally the Bank of Canada rate for the transaction date, or the closest preceding quoted day. Other sources such as Bloomberg, Thomson Reuters or OANDA qualify only if every CRA condition is met and they are used consistently. **Is an FX gain business income or a capital gain?** FX follows the underlying transaction. On ordinary-course receivables or payables it is ordinary income or loss; from holding currency it is generally capital, so only the taxable portion is included. **Is there a small-amount exemption?** Yes, for individuals: only net capital FX gains or losses above $200 a year are reported; $200 or less, nothing. Not for corporations or income-account FX. **How do I handle a US-dollar bank account?** Reconcile in US dollars, not converted Canadian dollars, and let the system post the exchange difference. Reconciling the converted figure hides errors and makes FX unverifiable. **What about unrealized FX at year end?** Accounting generally retranslates monetary balances at the closing rate, but tax may differ. Any difference is a reconciling adjustment on the [corporate return](https://www.everstonecpa.com/corporate-tax-return-t2), so identify it. **Do foreign balances trigger other reporting?** They can: if specified foreign property costs more than the threshold at any point in the year, Form T1135 is required. Foreign bank balances count, so check yearly. ## Books with more than one currency? Tell us which currencies you deal in and roughly how many transactions a month. A CPA replies by email within one business day with a fixed monthly fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online). 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