July 10, 2009
Government Travel Committee
The purpose of this Communiqué is to inform persons subject to the NJC Travel Directive on how to calculate foreign currency conversions when submitting foreign travel expense claims. This Communiqué provides readers with detailed instructions on the calculation methodology which complements the intent of the following NJC Travel Directive articles:
- Additional business expenses articles 3.1.2, 3.2.2, 3.3.2, 3.4.2 (Module 4 text inserted below) and
- Currency exchange articles 3.1.4, 3.2.4, 3.3.4 and 3.4.4 (Module 4 text inserted below).
"3.4.2 Additional business expenses
The employee shall be reimbursed for business expenses not otherwise covered, such as business calls, photocopies, word-processing service, faxes, internet connections, rental and transportation of necessary office equipment and transportation of required personal effects.
Employees whose schedules have been altered for reasons outside their control shall be reimbursed for reasonable telephone costs to attend to situations related to the employee's altered schedule.
Where required, the employer shall make the necessary arrangements for obtaining entry documents as determined by the department, and/or an appropriate passport and photos, and/or visa as determined by Foreign Affairs and International Trade Canada, and any required inoculations, vaccinations, X‑rays and certificates of health, at no expense to the employee. Where possible, the services of Health Canada, Veterans Affairs Canada or National Defence shall be used for medical services. Any related expenses incurred by an employee shall be reimbursed.
The employee shall also be reimbursed for service charges/fees, for actual and reasonable expenses, for financial transactions, such as but not limited to:
- Automated Banking Machine use;
- government travel card use;
- credit/debit card use;
- financial institution foreign currency transaction commission(s);
- traveller's cheques acquisition; and
- cheque-cashing fees.
Reimbursement claims shall be supported by receipts and indicate the expense currency.
The employee shall also be reimbursed for the cost of a safety deposit box when supported by receipts."
- And -
"3.4.4 Currency exchange
The costs incurred to convert reasonable sums to foreign currencies and/or reconvert any unused balance to Canadian currency shall be reimbursed, based upon receipts, from all transactions and sources.
When these costs are not supported by receipts, the average Bank of Canada currency exchange rate shall apply. In cases where the Bank of Canada does not provide an exchange rate, an alternate bank rate from an established institution, as determined by the employer, shall be applied. The rate shall be the average of the rates applicable on the initial date into the country and the final date out of the country."
Foreign Currency Buy/Sell Rates
Foreign currency transactions involve multiple exchange rates which fall under two main categories:
- a buy rate (meaning the person buys currency); and
- a sell rate (meaning the person sells currency),
which are normally not the same exchange rate value.
The foreign currency buy/sell exchange rate values vary depending on many factors such as but not limited to:
- the value of the currencies being exchanged (e.g. Canadian Dollar for Euros),
- the type of transaction (e.g. cash, amount of cash transaction, traveller's cheques, cash via Automated Banking Machines (ABM), credit card transactions),
- the institution performing the transaction (e.g. bank, financial institution, ABM linked to a specific bank, hotel front desk, airport kiosk, exchange rate business, etc.) and
- the location (e.g. within Canada prior to departure or alternatively in a foreign country).
Buy/sell transactions can result in a monetary gain or loss – refer to the Buy/Sell Example outlined below:
Buy/Sell Example:
Canadian Dollar (CAD) and United States of America Dollar (USD)
Pre-travel status
A person buys 1,000.00 USD cash at their local bank at a currency exchange "buy rate" of 1.10309 against the CAD. Therefore 1,000.00 USD cash costs 1,103.09 CAD.
While in travel status
The person spends 800.00 USD cash during travel status (therefore upon return to Canada has an unused cash amount of 200.00 USD). The balance of their USD expenses would be paid via a credit card.
Post-travel status
Fair and reasonable exchange rate expenses are a reimbursable travel expense, based on a receipt and an explanation.
If the exchange rate is lower than the original exchange rate transaction value, a monetary loss has occurred. Alternatively, if the exchange rate is higher than the original exchange rate transaction value, a monetary gain has occurred. Refer to the explanatory example below.
The person sells 200.00 USD to bank (the bank will purchase currency normally at a lower exchange rate). The bank offers 1.0555 to purchase the USD from the person.
The exchange gain/loss is calculated as follows:
- Original buy rate (1.10309) means 200.00 USD cash cost 220.62 CAD.
- Selling unused 200.00 USD cash x 1.0555 (bank purchase rate from the person) = 211.10 CAD.
- Result – in this particular case the difference is an exchange loss of 9.52 CAD (which is due to the person on the travel expense claim).
In the rare instance where a person experiences an exchange gain, this amount is deducted from the travel expense claim. In some cases, the person may be required by local laws to dispose of or convert their foreign currency prior to leaving the country, as it is illegal to leave some foreign countries with their currency.
Foreign Currency Preparation Stages
Preparation is key to the prevention of problems at the travel expense claim stage. Foreign currency transactions occur in all 3 stages of travel, specifically:
- pre-travel status;
- while in travel status; and
- post-travel status.
Persons must retain all foreign currency conversion receipts in order to be fully and correctly reimbursed.
(1) Pre-travel status:
Persons are reminded of their responsibility to review thoroughly the "current" Foreign Affairs and International Trade Canada (FAITC) – Travel Reports & Warnings (http://www.voyage.gc.ca/countries_pays/menu-eng.asp) to determine which currencies, traveller's cheques and/or credit card(s), if any, are accepted for each individual foreign country. It is imperative to be well informed prior to departure in order to make necessary arrangements (e.g. exchange some foreign currency prior to departure, when possible; determine what ABMs are available, if any; and determine if there are any restrictions and/or limitations on currencies). For safety reasons, large sums of cash should not be carried on your person.
FAITC Travel Report & Warning Example (always refer to latest publication)
The following provides an example of how rapidly circumstances can change.
Example A – ZIMBABWE PREVIOUS REPORT: 9. TRAVEL AND CURRENCY
The currency is the Zimbabwean dollar (ZWD). On August 1, 2008, the Zimbabwean dollar was revalued; ten zeros were truncated to create a new currency and old coins have been reintroduced. The new and old currency will co-circulate with the existing bearer cheques and special agro cheques, which expire on December 31st. Travellers, should remain cautious, as counterfeit of old notes could be found in circulation.
Most hotel charges for foreigners are based on a U.S. dollar rate and must be paid with credit cards or cash from internationally convertible currency (typically U.S. dollars or British pounds). Banks rarely accept traveller's cheques for conversion to local currency, and never exchange them for foreign devices.
Travellers should not attempt to change currency at unregistered currency exchange offices or outlets. It is unlawful to exchange foreign currency for Zimbabwean dollars with anyone other than a legitimate currency dealer affiliated with the Reserve Bank of Zimbabwe. Authorized currency dealers include the major banks, such as Standard Chartered and Barclays. Travellers leaving the country can take out up to USD$1,000 cash or the equivalent in other foreign currencies, ZWD$5 billion in cash and unlimited US$ in traveller's cheques.
Check with your bank for information on Automated Banking Machine (ABM) services in other countries or regions. You can also check the "VISA ATM locator" page or the "MasterCard ATM locator" page for the addresses of ABMs around the world. Your bank can advise if you need a new personal identification number (PIN) for overseas access to your account. Credit cards and debit cards should be used with caution due to the potential for fraud and other criminal activity. ABMs should be used during business hours inside a bank, supermarket, or large commercial building. Leave copies of your card numbers with a family member in case of emergency.
Example B – ZIMBABWE MARCH 2009 REPORT: 9. TRAVEL AND CURRENCY
The Reserve Bank of Zimbabwe removed all foreign currency restrictions in January 2009 and the payment of goods and services in Zimbabwe is now allowed in multiple currencies, including the Zimbabwe dollar, US dollar, South African Rand and Botswana Pula.
Twelve zeros have been eliminated from the denomination of the Zimbabwe dollar, and new low denomination bearer cheques are being issued, but until June 30, 2009, both the old and new Zimbabwe bearer cheques notes will be legal tender and in circulation. After June 30, 2009, the old family of high denominations will cease to be legal tender. Travellers should remain cautious, as counterfeit of old notes could be found in circulation. Price controls have been removed, which enables business to be conducted in multiple currencies.
Hyper-inflation has severely affected the cost of goods and services and has led to wide fluctuations in costs and shortages of items. The inter-bank exchange rate for hard currency has been set artificially low, leading to a thriving parallel or black-market rate.
Most hotel charges for foreigners are based on a U.S. dollar rate and must be paid with credit cards (e.g., VISA, Diners Club and American Express), or cash from internationally convertible currency (typically U.S. dollars or British pounds). Mastercard is not accepted for payment in some cases. Some of the banks (e.g. Standard Chartered and Barclays Bank) have swapping machines to withdraw money. Banks rarely accept traveller's cheques for conversion to local currency. It is also not recommended to use a debit card at the point of sale and/or at the automated banking machines (ABMs) as the exchange rate is based on the official inter-bank rate which is extremely low.
Travellers should not attempt to change currency at unregistered currency exchange offices or outlets. The exchange of foreign currency for Zimbabwean dollars should only be done with a legitimate currency dealer affiliated with the Reserve Bank of Zimbabwe. Authorized currency dealers include the major banks, such as Standard Chartered and Barclays. Travellers leaving the country can take out up to USD$1,000 cash or the equivalent in other foreign currencies and/or ZWD$200 in cash. Therefore, travellers who wish to take out additional foreign currency are required to seek permission from the Reserve Bank of Zimbabwe. Presently, there are no traveller's cheques in the country.
Check with your bank for information on automated banking machine (ABM) services outside Canada. You can also check the "VISA ATM locator" page or the "MasterCard ATM locator" page for the addresses of ABMs around the world. Verify with your financial institution whether your bank card can be used with ABMs abroad. Some countries use chip and/or personal identification number (PIN) technology for credit cards. Check with your bank to find out if your credit card will be accepted abroad. Credit cards and debit cards should be used with caution due to the potential for fraud and other criminal activity. ABMs should be used during business hours inside a bank, supermarket, or large commercial building. Leave copies of your card numbers with a family member in case of emergency.
Also prior to departure, verify the meal and incidental allowance amount and currency type listed in Appendix D, by country name first and then by city/location (under each country name) in order to plan for traveller's cheques, travel advance (if necessary) and/or credit card usage. For example, Vietnam is sometimes set in USD instead of the local currency Vietnamese Dong.
(2) While in travel status:
Retain all foreign currency conversion transaction receipts. These receipts indicate the exchange rates used for transactions and any related commissions, fees and/or service charges.
Persons are reminded to convert or dispose of any unused foreign currencies to an acceptable global currency (e.g. CAD, USD, Euros, etc.) prior to leaving the travel destination country. Unused traveller's cheques should be redeemed post-travel status unless another authorized trip is pending. Departments cannot dispose of unused foreign currency notes, coins, or traveller's cheques.
(3) Post-travel status:
Step A – Preparation Stage
Assemble all foreign currency conversion receipts from all sources depicting currency exchange conversions and/or service charges/fees related to government business travel. This includes, but is not limited to, ABM usage slips, personal credit statements, debit card transaction slips, Designated Travel Card and/or Designated Responsibility Centre Travel Card receipts and the corresponding monthly statement (which will indicate the exchange rate used by the credit card company), financial institution foreign currency transaction commission(s) slips, traveller's cheques acquisition and cheque cashing fee documents, hotel front desk currency conversions slips, airport currency exchange kiosks detailed receipts, departmental travel advance receipt (i.e. 500.00 USD at 1.06543, etc.), Embassy/High Commission transaction receipts, etc.
If the receipts are in a foreign language, persons should provide the above mentioned information in English or French to facilitate the travel expense claim calculations and account verification process.
Persons may claim foreign currency conversion commissions/service fees as travel expenses provided that the foreign currency conversion receipts clearly indicate the amount of commission / fee / service charge for reasonable sums of foreign currencies.
"3.4.4 Currency conversion - The costs incurred to convert reasonable sums to foreign currencies and/or reconvert any unused balance to Canadian currency shall be reimbursed based upon receipts, from all transactions and sources."
Review each individual receipt, including hotel folio details, for service charges / fees / commissions and enter that specific expense on the travel expense claim, in the currency in which it was incurred (e.g. 1.50 USD ABM charge for cash advance of 500.00 USD, depicted on the ABM receipt; 11.00 CAD Designated Travel Card (DTC) transaction and percentage fees for cash advance withdrawal, depicted on the DTC statement; 4.00 Euros bank commission for traveller's cheques; 12.65 Tanzania Shillings exchange loss on currency conversion departing from Tanzania when converting shillings back to USD).
Assemble similar currency type exchange receipts (i.e. assemble all USD receipts, assemble all Euro receipts, etc.).
Finalize the travel expense claim. Total each of the foreign currencies in order to determine the total amount spent/claimable in accordance with the NJC Travel Directive provisions, for each individual foreign currency. This step must be completed prior to conversion of foreign currency.
Step B – Conversion Calculation Stage
The exchange rates used for conversion are dependent on the travel expense claim expenses covered by foreign currency conversion receipts (in other words the travel expense claim must be fully completed prior to determining the total expenses in each foreign currency in order to use the foreign currency exchange receipts to convert foreign currencies to Canadian dollars). Note that for employees posted abroad, the conversion may be to the currency of the host country.
As a first step and in every case, all foreign currency conversion receipts must be used to identify the applicable exchange rates for conversion. In most cases, the total value of foreign currency conversion receipts will exceed the total travel claim expenses. Refer to Example 1 – Total value of foreign currency conversion receipts is higher than the allowable expenses - weighted average exchange rate.
In the event that the total value of the foreign currency conversion receipts is lower than the total travel claim allowable expenses in that currency, the person will use a two step calculation. Refer to Example 2 – Total value of foreign currency conversion receipts is lower than the allowable expenses.
1. Apply the actual foreign currency conversion exchange rates to the amounts supported by receipts.
"3.4.4 Currency conversion - The costs incurred to convert reasonable sums to foreign currencies and/or reconvert any unused balance to Canadian currency shall be reimbursed based upon receipts, from all transactions and sources."
2. For the balance of allowable expenses without supporting foreign currency conversion receipts, a person will apply the average bank exchange rates to convert directly from the foreign currency to CAD. This is an average of two bank exchange rates;
(a) The bank exchange rate for the initial date entering the country; and
(b) The bank exchange rate for the final date exiting the country.
For example, while travelling to Thailand, a person has a stopover or layover and/or possible rest period in Hong Kong on the way to and from Thailand. The person arrived in Hong Kong on February 1st and departed for Thailand February 2nd. On the way back to Canada, the person arrived in Hong Kong on February 26th and left for Vancouver on February27th. Therefore the initial date entering Hong Kong would be February 1st and the final date exiting the Hong Kong would be February 27th. In this particular case the Bank of Canada provides an exchange rate for Hong Kong. For consistency, it is recommended that the 12 Noon exchange rate be used whenever the Bank of Canada rates are required.
3. Alternatively, for those foreign countries where the Bank of Canada does not provide rates (e.g. Burma), an alternate exchange rate source may be used by departments; however, the same principles apply: initial date entering the country and the final date exiting the country.
"3.4.4 When these costs are not supported by receipts, the average Bank of Canada currency exchange rate shall apply. In cases where the Bank of Canada does not provide an exchange rate, an alternate bank rate from an established institution, as determined by the employer, shall be applied. The rate shall be the average of the rates applicable on the initial date into the country and the final date out of the country."
Bank of Canada Exchange Rates http://www.bankofcanada.ca/en/rates/exchange.html
Bank of Canada exchange rate means the 12 Noon exchange rate for the initial date into the country and the final date out of the country.
- Bank of Canada (main page) http://www.bankofcanada.ca/en/index.html
- Exchange rates (against 56 foreign currencies only): http://www.bankofcanada.ca/en/rates/exchange.html
The Bank of Canada currently collects data for approximately 56 foreign currencies. This data is intended primarily for people with a research interest in foreign exchange markets, and represents a sampling of currencies from various regions. It is not meant to be an exhaustive listing of all world currencies.
Alternate Bank Rate is restricted to those countries for which the Bank of Canada does not provide an exchange rate:
- Accu-Rate Corporation: http://www.accu-rate.ca/
- HiFX Foreign Exchange Specialists: http://www.hifx.com/
- OANDA.com: http://www.oanda.com/
- eXchangeRate.com: http://www.exchangerate.com/indication_rates.html
- XE-Universal Currency Converter: http://www.xe.com/ucc/
Example 1 – Total value of foreign currency conversion receipts is higher than the allowable expenses - weighted average exchange rate
A person travelled to Thailand. Based on the NJC Travel Directive provisions (refer to detailed completed travel expense claim), the allowable expenses in Thai Bahts are 10,000. During travel status, the person made 3 currency conversion transactions totalling 685.00 CAD (from traveller's cheques) converted to 12,000 Bahts.
The three currency conversion receipts show the following transactions:
|
Currency Conversion Receipt # |
Thai Bahts |
Canadian Dollars (CAD) |
|
#1 credit card (statement) |
8,000 |
450.00 |
|
#2 ABM cash withdrawal |
2,000 |
115.00 |
|
#3 ABM cash withdrawal |
2,000 |
120.00 |
|
Total |
12,000 |
685.00 |
Weighted Average Exchange Rate:
Bahts
Since the currency conversion receipts indicate a total conversion of 12,000 Bahts, which exceeds the allowable expenses of 10,000 (the travel expense claim), the weighted average exchange rate shall be used for the conversion.
685.00 (CAD) / 12,000 (Thai Bahts) = 0.05708.
The allowable travel claim expenses of 10,000 Bahts are equivalent to 570.80 CAD.
10,000 Bahts x 0.05708 = 570.80 CAD.
Example 2 – Total value of foreign currency conversion receipts is lower than the total allowable expenses
A person travelled to Thailand. Based on the NJC Travel Directive provisions (refer to detailed completed travel expense claim), the allowable expenses in Thai Bahts are 10,000. During travel status, the person made 3 currency conversion transactions totalling 455.00 CAD (from traveller's cheques) converted to 8,000 Bahts.
The three currency conversion receipts show the following transactions:
|
Currency Conversion Receipt # |
Thai Bahts |
Canadian Dollars (CAD) |
|
#1 credit card (statement) |
5,000 |
280.00 |
|
#2 traveller's cheques |
1,500 |
85.00 |
|
#3 cash conversion |
1,500 |
90.00 |
|
Total |
8,000 |
455.00 |
Since the total value of foreign currency conversion receipts (8,000 Bahts) is lower than the total allowable expenses of 10,000 (the travel expense claim), the person shall convert the amount covered by conversion receipts (8,000 Bahts) to the actual amount converted (455.00 CAD).
For the balance of the allowable expenses not supported by currency conversion receipts (10,000 Bahts – 8,000 = 2,000 Bahts), the person shall apply the average bank exchange rate.
On the initial date the person entered Thailand, the Bank of Canada rate was: 0.05600. On the final date the person exited Thailand, the Bank of Canada rate was: 0.05658.
Average Bank Exchange Rate calculation is: (0.05600 + 0.05658) / 2 = 0.05629.
Therefore, the person shall use the average bank exchange rate of 0.05629 to convert the 2,000 Bahts not covered by conversion receipts:
2,000 Bahts x 0.05629 = 112.58 CAD.
Accordingly, the total allowable expenses of 10,000 Bahts (travel expense claim amount) are equivalent to 567.58 CAD.
|
8,000 Bahts with conversion receipts |
455.00 CAD |
|
2,000 Bahts without conversion receipts (Bank of Canada average exchange rate) |
112.58 CAD |
|
10,000 Bahts allowable expenses are equivalent to |
567.58 CAD |
Example 3 – A currency is used in two or more countries and the total value of the foreign currency conversion receipts is lower than the total allowable expenses.
A person travelled to:
Antigua – November 11 to 15th
Grenada – November 15th to 20th
Dominica – November 20th to 24th
Barbados – November 24th to 30th.
The travel claim includes allowable expenses in local currencies and USD. The hotels in Grenada and Barbados charged the person a total of 500.00 USD.
The person has the following conversion receipts showing the exchange of 485.00 CAD to 350.00 USD.
|
Currency Conversion Receipt # |
United States of America Dollar (USD) |
Canadian Dollars (CAD) |
|
#1 ABM cash advance |
100.00 |
140.00 |
|
#2 traveller's cheques |
150.00 |
206.00 |
|
#3 credit card (statement) |
100.00 |
139.00 |
|
Total |
350.00 |
485.00 |
Since the total value of foreign conversion receipts (350.00 USD) is lower than the total allowable travel expenses (500.00 USD), the person shall convert the amount covered by foreign currency conversion receipt (350.00 USD) to the actual amount converted (485.00 CAD).
For the balance of the allowable expenses without currency conversion receipt (500.00 USD - 350.00 USD = 150.00 USD), the person shall apply the average bank exchange rate.
On the initial date (November 15th) the person entered Grenada, the first country where the person used US dollars, the Bank of Canada rate was: 1.375. On the final date (November 30th) the person exited Barbados, the last country where the person used US dollars, the Bank of Canada rate was: 1.387.
Average Bank Exchange Rate calculation is: (1.375 + 1.387) / 2 = 1.381
Therefore, the person shall use the average bank exchange rate of 1.381 to convert the 150.00 USD not covered by conversion receipts: 150.00 USD x 1.381 = 207.15 CAD.
Accordingly, the total allowable expenses of 500.00 USD (travel expense claim amount for all countries where USD were claimed) are equivalent to 692.15 CAD.
|
350.00 USD with conversion receipts |
485.00 CAD |
|
150.00 USD without conversion receipts (Bank of Canada average exchange rate) |
207.15 CAD |
|
500.00 USD allowable expenses are equivalent to |
692.15 CAD |
Excel Spreadsheet Examples:
Multiple examples of travel expense claims with foreign currency conversion calculations have been developed as follows [click on related files below]:
- Example 1 - US Dollar - Foreign Currency Conversion (FCC) - Weighted Average Exchange Rate,
- Example 2 - US Dollar - Foreign Currency Conversion (FCC) - Bank of Canada Average Exchange Rate,
- Example 3 - Pounds Sterling - Foreign Currency Conversion (FCC) - Dual Calculation:
- Weighted Average Exchange Rate (based on FCC receipts) and
- Bank of Canada Average Exchange Rate for unsupported amount, - Example 4 - Peso and US dollar - Foreign Currency Conversion (FCC)
- Multiple Peso Calculations, - Example 5 - Pounds Sterling - Foreign Currency Conversion (FCC)
- Exchange Rate Loss / Weighted Average Exchange Rate - Example 6 - Alternate Bank Rate - Foreign Currency Conversion (FCC) - Bank of Canada does not Buy/Sell Currency
For additional information concerning foreign currency conversion calculations, please contact your Designated Departmental Travel Co-ordinator(s): http://www.tbs-sct.gc.ca/hr-rh/gtla-vgcl/dtc-cmv-eng.asp.