Foreign income exchange rate: Bank of Canada day rate or 2025 average

Which rate applies to each kind of foreign amount?

Subsection 261(2) requires Canadian tax results in Canadian dollars, with each foreign amount converted at the relevant spot rate for the day it arose. Subsection 261(1) defines that rate as the Bank of Canada rate for the day, or another rate acceptable to the Minister laws-lois.justice.gc.ca. The CRA's guidance then sets a practical rate for each kind of amount.

For interest and dividends, the CRA starts from the Bank of Canada rate on the day the amount arises and says an average over the relevant period may be used canada.ca. For a monthly pension or multiple payments at different times, it points to the annual average canada.ca. The foreign tax credit folio says foreign tax should be converted at the same rate as the income itself, and that whichever method your client picks should be applied consistently from year to year canada.ca.

What were the Bank of Canada annual averages for 2023 to 2025?

The Bank of Canada publishes one annual average per currency, expressed as Canadian dollars for one unit of the foreign currency bankofcanada.ca. These are the figures for the currencies Canadian clients hold most often.

As of October 2026 there is no 2026 annual average yet. The Bank publishes the annual averages by 12:30 ET on the last business day of the year bankofcanada.ca. For a 2026 amount that arose on a known date, use that day's rate, which the Bank publishes once each business day by 16:30 ET bankofcanada.ca.

How do you convert a euro pension with tax withheld?

Your client received a foreign pension of €800 a month through 2025, and the payer withheld €120 of tax each month. The payments came in at different times through the year, so the 2025 euro annual average of 1.5782 converts both the income and the tax.

The income goes on the return at the gross $15,150.72, and the $2,272.61 of foreign tax supports the foreign tax credit. The CRA tells filers not to subtract foreign taxes from the income they report canada.ca. Converting the tax at a different rate from the income is the mismatch the folio warns against canada.ca.

Why a US stock sale needs two exchange rates

For capital property bought or sold in a foreign currency, the CRA converts each piece on its own date: proceeds at the rate when the property was sold, the ACB at the rate when it was acquired, and outlays at the rate when they were incurred canada.ca. The foreign tax credit folio adds that the rate for a capital gain should approximate the rate when the gain was realized canada.ca. The same line 12700 page's reporting step also allows the Bank of Canada annual average when there were transactions at various times through the year canada.ca, so for a large single sale, the day's rate is the safer match to the folio.

Assume your client bought 100 shares for US$5,000 when the Bank of Canada rate was 1.3500, then sold them for US$6,000 with a US$10 commission when the rate was 1.4200.

Converting the US$990 gain at the sale rate alone gives $1,405.80, which understates the gain by $350.00. That $350 is the currency move on the original US$5,000 (US$5,000 x 0.07), and it belongs in the capital gain. Check the dealer's box 20 cost before relying on it: the T5008 shows that book value in the trade currency, and your client's true ACB is the adjusted cost base across every purchase, each at its own rate.

When does the CRA refuse an average or another rate?

The CRA accepts an average rate over a period for some income items for practical reasons, but where exchange rates fluctuate significantly it says an average will not generally be accepted canada.ca. In a year when the currency swung hard, convert large single payments at the day's rate.

A rate from a source other than the Bank of Canada is accepted only if it meets every condition in the reporting currency folio: widely available, verifiable, published by an independent provider on an ongoing basis, recognized by the market, used under well accepted business principles, used in your client's financial statements and used consistently from year to year. The folio names Bloomberg L.P., Thomson Reuters Corporation and OANDA Corporation as examples canada.ca.

Two technical points catch preparers. When no Bank of Canada rate is quoted for the day (a weekend or a bank holiday), subsection 261(1) uses the closest preceding day with a quote. And when neither currency is the Canadian dollar, the rate is worked out from the Bank of Canada rate for each currency against the Canadian dollar laws-lois.justice.gc.ca.

Which rates go on Form T1135?

The T1135 instructions say to work out each amount in the foreign currency and then translate it. Generally, use the rate at the time of the transaction (when the income was received or the property was purchased), and an average rate for the year is acceptable for income received throughout the year canada.ca.

Round every amount to the nearest dollar, and if the filer elected a functional currency under paragraph 261(3)(b), report in that currency instead of Canadian dollars canada.ca. Whether your client files at all depends on the $100,000 cost test on the T1135 filing requirements page.