# Capital gains on usd/cad exchange



## evol12 (Mar 23, 2017)

I live and work in Montreal. My work is done remotely on the internet all my income is currently paid in USD. I receive checks in the mail and deposit them directly into a USD account at a Canadian bank. I set this up because I regularly buy US-listed stocks with Questrade and wanted to save on unnecessary currency exchange fees. Periodically, I transfer money from my USD account into my CAD account so I have canadian dollars to spend on things.

It came to my attention recently that maybe I need to be paying capital gains on these exchanges and perhaps any purchases I make with USD, even if they never change into CAD.

My understanding of capital gains in relation to a situation like this is that if I put CAD into a USD account, wait for the value of CAD to fall and then withdraw it back into CAD with a profit from the previous exchange rate, the difference between the two is my capital gain and I need to therefore track this, put aside money to pay capital gains and then file it on my tax return. But in my situation I am generally not doing this. I am being paid in USD and then either converting into CAD or using the USD to make a purchase (stocks denominated in USD). But I see numerous allusions online to having to pay capital gains when literally anything is done with foreign currency, even if most people aren't reporting it.

If it's true that I do need to be reporting and paying capital gains on all these transactions, how do I do it and what information is is based upon? If CAD is not the starting currency and the conversion is only happening once, what is the starting exchange rate you are comparing it to for your 'gain'?


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## avryw (Jun 20, 2014)

You have to report a net capital gains (loss) in excess of $200 for the year. Check interpretation bulletin IT-95R on the CRA website for details.


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## AltaRed (Jun 8, 2009)

If you are generally using your USD fairly immediately to purchase either CAD or to buy US stocks or Cdn inter-listed stocks, there is not going to be much foreign exchange gains (or losses) to worry about in the overall scheme of things IF the forex rate is not changing materially in that interval.

Example: You get $5000 USD on day X when the loonie is 0.7546. On Day X+10, you purchase a USD stock or a Cdn inter-listed stock on the NYSE with $4500 when the loonie is 0.7538. Is the (0.7546-0.7538)x $4500 = $3.60 of forex gain worth keeping track of... and is the remaining USD$500 being held until the next purchase worth keeping track of? Sometimes of course, the exchange rate will go the other way between the time you receive the USD and invest it...thereby mitigating the previous gain.

Only you can decide if presumably 20-30 of these things (assuming a bi-weekly pay period) worth it? I'd look at it if you were holding quite a bit of USD balance for a protracted period, e.g. if your USD cash balance is always in the order of $20k throughout the year....then it may be important to consider the forex difference. It can be a complicated spreadsheet.

Added: I would tend to neglect keeping track of it IF the USD cash balance is typically fairly low AND the loonie has not changed more than a cent or two from beginning to end. $10,000USD x (0.76-0.74) = $200 forex gain = the amount you are allowed to ignore.


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## CalgaryPotato (Mar 7, 2015)

I don't really think anyone keeps track of this and pays capital gains, unless they are doing this for the purpose of forex investing specifically.

People move money back and forth between their USD accounts and Canadian accounts all of the time for personal reasons. Unless you are doing this with really high volumes of money, the likelihood that of any serious capital gains over time is extremely low.


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## evol12 (Mar 23, 2017)

CalgaryPotato said:


> I don't really think anyone keeps track of this and pays capital gains, unless they are doing this for the purpose of forex investing specifically.
> 
> People move money back and forth between their USD accounts and Canadian accounts all of the time for personal reasons. Unless you are doing this with really high volumes of money, the likelihood that of any serious capital gains over time is extremely low.


That is my impression but I guess the question is what constitutes "high volumes of money". I could imagine in the future, if I'm financially able, buying several thousand dollars worth of US-listed stock a month. Some of that would come straight from USD and some would come from USD that were converted originally from CAD.

When it comes to taxes, I like most people, don't like surprises, whether that surprise comes this year or in 20 years when I start selling off some of these shares. Obviously I would prefer not to be doing an anal level of accounting for each transaction but if it seems like I need to in order to avoid trouble, I will.


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## evol12 (Mar 23, 2017)

Meant to include this in message above but couldn't find an 'Edit' button.

In the future at some point I expect to have income in CAD as well so I will naturally want to convert some of that on a regular basis into USD to buy US-listed stocks. So, I could easily imagine holding my investments for 20 years without selling off any of them and much of it by that point would be USD-denominated US-listed stocks bought originally with CAD. When I start selling portions of these investments, I will get USD, but convert them into CAD to pay for things. So in a very long term way, I would be doing what I initially described that I wasn't currently doing, converting CAD to USD to USD stock to USD to CAD. So would I be liable for reporting capital gains/losses on the difference from the exchange rate on the day 20 years before? Or is there some kind of year limit where you don't have to keep tracking this?


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## AltaRed (Jun 8, 2009)

CalgaryPotato said:


> *I don't really think anyone keeps track of this and pays capital gains,* unless they are doing this for the purpose of forex investing specifically.
> 
> People move money back and forth between their USD accounts and Canadian accounts all of the time for personal reasons. Unless you are doing this with really high volumes of money, the likelihood that of any serious capital gains over time is extremely low.


Per my Bold.... I am aware of many people who do keep track (as discussed in financial forums) and not just currency traders. Ignorance of the law is no excuse. That said, it is a bit 'anal' to keep meticulous track of every transaction just in case one might get above the $200 threshold by $50-100 or so. It is a judgement call based on how much USD cash one might be carrying in their accounts (plural) and when/how they use it. 

For example, I will cash in a USD investment if I need too, to go along with my USD distributions each year to fund annual adventures worldwide in the order of $20-50k USD. I will have already taken care of the forex when the investment was divested (by virtue of Schedule 3) and also on distributions received (by virtue of Schedule 4) but there will be either + or - forex change before I actually spend the money. I simply don't keep track of that for funds used for consumables like vacations. Might it exceed $200? Maybe, but likely not unless the loonie took a severe dip at the time I actually spend the funds. I doubt very much CRA will pick on anyone who is not knowingly and deliberately 'avoiding' currency gains.


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## james4beach (Nov 15, 2012)

I receive all my income in USD as well. Each time I receive the paycheque I note down the USDCAD rate *on day I received the pay*, e.g. 2000 USD received and USDCAD=1.30 at the time, so that means I've received 2600 CAD on this pay day.

I accumulate my USD cash and occasionally use gambits to transfer them to CAD. Let's say I waited a while and convert the money at USDCAD=1.35, with proceeds 2700 CAD. In this case I should record $100 of capital gains on FX.

But the only way you're going to have a capital gain for the year is if you are consistently converting it at a better rate. Assuming you receive pay evenly through the year, it's very unlikely you're seeing a profit on your conversion activity. I did this calculation for last year and found that the rates I converted the USD was slightly better than the rate on my pay day. But it was miniscule, not reportable, even with over 100k of USD income received.

How regularly are you receiving these paycheques? Do you convert them immediately, or wait a file? If you are converting each immediately then you don't have an FX gain/loss.

If however you are storing the USD after receiving it and later doing a conversion, then you should do a calculation to see if you've realized a gain as a result.


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## evol12 (Mar 23, 2017)

james4beach said:


> How regularly are you receiving these paycheques? Do you convert them immediately, or wait a file? If you are converting each immediately then you don't have an FX gain/loss.


I receive around $2000 in USD a month. What I've been doing so far is estimating the amount of income tax I'll need to pay on it, subtracting that and with my resulting amount, transferring about half of it into my CAD account and transferring the other half into my Questrade USD account and buying US-listed stock as soon as the transfer is complete.

I'm getting the impression from the discussion so far that storing my tax money in USD and then converting it at the end of the year to pay the balance due probably isn't the best idea and it would be best to just convert it all right away to CAD and store it in my CAD account for payment at the end of the year. My goal is simplicity, not converting at perfectly optimal time at the expense of extra tax responsibilities.

But I have seen discussions online suggesting that when any foreign currency is used to buy something (i.e. a stock), even if it is in the same foreign currency, you're liable for "capital gain" on the difference between the value of CAD on the day you got the foreign currency and the day you spend it, even if no conversion took place. Has anyone heard of this?

In the CRA document referenced by the first reply: CRA IT-95R (Google it, can't post links yet)



> The following are examples of the time when the Department considers a transaction resulting in the application of subsection 39(2) to have taken place.
> ...
> (b) at the time funds in a foreign currency are used to make a purchase or a payment (in such a case the gains or loss would be the difference between the value of the foreign currency expressed in Canadian dollars when it arose and its value expressed in Canadian dollars when the purchase or payment was made)...


That quote seems to suggest that however illogical this may seem, there may be truth to it.


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## Woz (Sep 5, 2013)

It’s somewhat up to the individual. I take the approach that Ignorance is no excuse and it’s such a small gain that I may as well report it properly.

In the past my strategy had always been to keep as little USD as possible and not bother tracking it. However, my US holdings/US dividends started getting larger and it started getting tougher to always keep a low balance. I started getting more worried I was exceeding $200, so last year I decided to go back and actually calculate it. I went over all my US transactions in the past 10 years (~500). It was fairly time consuming. I found there was 1 year where I had a $370 gain that I should’ve reported. This year I’ll have a $420 gain that I’ll be reporting. It’s definitely a pain, but personally I’m glad I track it.


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## Woz (Sep 5, 2013)

It definitely is true that if you’re following the letter of the law any time you receive or dispose of USD it’s a capital event. Every time you receive income or proceeds from sale of US stocks it’d increase your cost base. Any time you convert that money to another currency or spend it you’d have a capital gain/loss.


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## AltaRed (Jun 8, 2009)

evol12 said:


> But I have seen discussions online suggesting that when any foreign currency is used to buy something (i.e. a stock), even if it is in the same foreign currency, you're liable for "capital gain" on the difference between the value of CAD on the day you got the foreign currency and the day you spend it, even if no conversion took place. Has anyone heard of this?
> 
> In the CRA document referenced by the first reply: CRA IT-95R (Google it, can't post links yet)
> 
> That quote seems to suggest that however illogical this may seem, there may be truth to it.


Indeed, that is true. That said, unless there are significant moves in the value of the loonie between the day you received the USD and the day it was used to buy a CAD or USD investment, especially if the two transactions happen fairly closely together. As James suggests, given the way the loonie moves up and down, there will be times when you have a gain and other times when you have a loss. Just depends on your own specific 'luck' when the transactions occurred. Net effect over the year may be immaterial. The conscientious investors will keep track of all these pieces and report dutifully on their tax returns. A good portion of society* is probably 'brain dead' on even knowing that is supposed to be done, and another portion know but put the 'blinders' on and ignore it. I'd suggest that CRA may look most closely at those who receive their income in USD than in CAD but that is just a WAG on my part.

* I suspect a good portion of society is 'brain dead' on many financial things ranging from ACB tracking to flow through shares to appropriately managing revenue/expenses on investment real estate, attribution of income, inappropriate use of joint accounts, etc. Too many people get into financial situations without training wheels and understanding tax law before they plunge in. That stuff keeps tax accountants, auditors and tax assessors awake at night and/or happily employed.


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## avryw (Jun 20, 2014)

evol12 said:


> But I have seen discussions online suggesting that when any foreign currency is used to buy something (i.e. a stock), even if it is in the same foreign currency, you're liable for "capital gain" on the difference between the value of CAD on the day you got the foreign currency and the day you spend it, even if no conversion took place. Has anyone heard of this?
> 
> That quote seems to suggest that however illogical this may seem, there may be truth to it.


Yes, it is correct. It might be illogical but that's how CRA interprets the law. Basically they see your cash position as if you invested C$ and bought $US. When you need to use US cash for purchase, return of debt, etc. you're deemed to sell your investment (in this case US$ deposit ), and then buy with other US$ stocks, pay down debt, etc.

Weather people are doing it or not is a different issue and is not related to the amount of gain beyond the $200. Ultimately it's your call weather you report it or not.


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## james4beach (Nov 15, 2012)

I'm doing some tax work today. If I get around to the FX from my paycheques I will post my info here to show how I'm reasoning this -- in case it helps others.


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## james4beach (Nov 15, 2012)

I receive income in USD, accumulate it, and periodically convert it. My calculations use a simplification: for acquisition cost, I use the average USD/CAD rate for the year. This is consistent with how I'm also reporting my foreign income.; it's valid because I receive evenly spaced paycheques through the year. The resulting capital loss in my case illustrates the fact that I converted the USD at _worse_ than the average rate for the year.

# FX GAIN/LOSS CALCULATION

USD was acquired through regularly occurring paycheques (at average exchange rate 1.3248 as per foreign income reported). Two conversions to CAD were done during the year,
* 2016-07-20: sold 21,849 USD @ 1.3040
* 2016-10-24: sold 8,987 USD @ 1.3373

ACB = 30,836 USD x 1.3248 = 40,851 CAD
Proceeds = (21,849 USD x 1.3040) + (8,987 USD x 1.3373) = 40,509 CAD

Capital loss = Proceeds – ACB = −342 (reported in capital gain/loss listing)


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## james4beach (Nov 15, 2012)

I made a mistake because I forgot a gambit trade made at the end of 2015, which settled in 2016. Here's my updated FX reporting (these are gambit trades). Separate from these FX events, I'm also listing cap gain/loss on the gambit stock transactions themselves but those are generally a $10 capital loss each just due to fees.

This sure is a lot of work for insignificant gain/losses, but probably still a good idea to report.

# FX GAIN/LOSS CALCULATION

USD was acquired through paycheques (at average exchange rate 1.3248 as per foreign income reported). Three conversions to CAD were done during the year, totalling 41,687 USD:
* 2016-01-05: sold 10,851 USD @ 1.3893
* 2016-07-25: sold 21,849 USD @ 1.3040
* 2016-10-27: sold 8,987 USD @ 1.3373

ACB = 41,687 USD x 1.3248 = 55,227 CAD
Proceeds = (10,851 USD x 1.3893) + (21,849 USD x 1.3040) + (8,987 USD x 1.3373) = 55,585 CAD

Capital gain = Proceeds – ACB = 358


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## james4beach (Nov 15, 2012)

If you're doing the foreign currency exchange using gambit trades (as I am) this can be reported much simpler. Here's what I'm doing now:

When you list your carrier stock in the capital gain/loss table, show the USD side of the trade as CAD equivalent at the average exchange rate for the year. The FX gain/loss shows up in the resulting capital/gain loss.

Example: in my reverse gambits, I buy the USD version of the stock and sell the CAD version. Say the carrier stock is TD, and I did the gambit by buying TD for 21,849 USD and selling it for 28,490 CAD. (The resulting rate of that conversion 1.3039 is worse than the year's average 1.3248 so it's an FX loss). In the capital gain/loss table, this is simply reported as

ACB = 21,849 USD x 1.3248 = $28,946
Proceeds = $28,490
Capital loss = 28490-28946 = −456


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## AltaRed (Jun 8, 2009)

Technically that is incorrect to do. All cap gain/loss transactions are supposed to bed one at the forex rate on date of settlement. Only recurring income such as dividends can be done at the average annual rate. CRA has stated that from time to time in Interpretations.


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## hboy54 (Sep 16, 2016)

Hi:

Well, I ran into this mine field a few years ago when the dollar rapidly depreciated. I spent days trying to reconstruct things going back years. In the end I established an arbitrary starting point, the effects of the time before that point to be estimated in the +- $100 tax range, and just went forward from there. If they call me on it, I'll say fine, how much more do you want and will pay it. There just is no practical alternative. One has to trust that they also see the impracticality of all this and realize that on a couple that pays taxes is all forms in high 5 figures annually, quibbling over the last few hundred dollars is in nobody's interest.

Going forward, I no longer hold $US is any quantity that will exceed the $200 exemption. I either spend it, or say screw the $10 commission and buy a few thousands of dollars of stock to make the problem go away. Life is too short to go through that hassle again.

hboy54


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## AltaRed (Jun 8, 2009)

I tend to hold a relatively small amount of USD cash at any one time, usually just enough to pay for a generous trip. For example, holding $20k in USD from time to time allows one to have depreciation of about one cent in the loonie to stay onside most of the time.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Technically that is incorrect to do. All cap gain/loss transactions are supposed to bed one at the forex rate on date of settlement. Only recurring income such as dividends can be done at the average annual rate. CRA has stated that from time to time in Interpretations.


Thanks for the correction, I didn't know that. The TD transaction summary docs showed a comment with the average exchange rate for the year. It's unfortunate they would print that figure if you're not supposed to use the average rate in capital gain/loss transactions.

If I'm supposed to use forex rate at the time of the trade, them I'm not sure how to properly report the gambits. Here's what would happen: in the capital gain/loss calculation each gambit is a constant $25 or so loss, just due to fees, but otherwise no gain/loss results. That means I still need to report a *separate foreign exchange gain/loss item*, the thing I calculate as a $358 gain in post #16

Which part of Schedule 3 does that go on? There's a part for shares and bonds, but nothing for currency transactions. Would I just add an item under the stock listing and say "Foreign currency transactions" ?

I agree that it looks more proper to separate out the currency transaction, I just can't figure out where to enter it on my tax return.


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## james4beach (Nov 15, 2012)

To spell out the difference here, these are the two ways I'm debating between. Both end up with the same net result, but I'd love to know which is the right way and where on Schedule 3 to report the "Foreign exchange gain" line item (Option 1)

Option 1: stock gambit reported at settlement day's USDCAD rate
TD stock, capital loss ... -25
Foreign exchange gain ... +358

Option 2: stock gambit uses average USDCAD rate for year
TD stock, capital gain ... +333


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## AltaRed (Jun 8, 2009)

I am travelling so cannot look that stuff up, but there should be somewhere on Sch 3 to report forex gains/losses. If CRA wants us to report forex gains/losses, I have to assume they have a place for that.


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## james4beach (Nov 15, 2012)

I found this article, which says to use Lines 151 and 153 (the Bonds and debentures section) of Schedule 3
http://www.advisor.ca/tax/tax-news/solve-foreign-exchange-problems-192435

That seems like an awkward place to put the Forex gains/losses, but maybe the idea is that FX is like fixed income / bonds.

All of this is a crazy amount of work for what, in the end is, only a $358 gain on 50K of foreign exchange.


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## gardner (Feb 13, 2014)

I calculate a > $1K currency gain for 2016 and as I use up my substantial stash of $US from 2014 and 2015, I anticipate larger amounts in the future.

I don't imagine the CRA would treat buying TDB8152 as locking in a valuation event. How about $US 5Y GICs?

I am finding it a real head wrecker to track the ACB for $US. I will have to implement a detailed excel calculator and put all the transactions in there to track it going forward. Bleah.


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## james4beach (Nov 15, 2012)

I've been able to calculate my FX gain but am still unclear about where to report it. Does Schedule 3's line 151 sound right, or is that guidance from an obsolete version of that form? On which line do you plan to report your FX gain?


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## AltaRed (Jun 8, 2009)

gardner said:


> I don't imagine the CRA would treat buying TDB8152 as locking in a valuation event. How about $US 5Y GICs?


Not TDB8152 since is an ISA and not a MMF. But I do wonder about a USD GIC?? I wonder why that would not be considered similarly to a bond or debenture that are valuation events. Hmmm.....


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## humble_pie (Jun 7, 2009)

james4beach said:


> To spell out the difference here, these are the two ways I'm debating between. Both end up with the same net result, but I'd love to know which is the right way and where on Schedule 3 to report the "Foreign exchange gain" line item (Option 1)
> 
> Option 1: stock gambit reported at settlement day's USDCAD rate
> TD stock, capital loss ... -25
> ...




idk, how would you have had a separate foreign exchange gain?

as i recall, first you sold short a carrier stock on toronto, in canadian dollars. Report that.

then you bought to cover the same carrier stock on new york, in US dollars. Report that converted to CAD at BOC noon rate of the settlement day.

afaik there should be little difference between the same amounts if the buy & the sell were done within minutes of each other.

however, if you delayed a few days & the currency exchange happened to go in your favour, this gain will appear in the figures as calculated above. IE your CAD proceeds after shorting will be greater than your CAD cost to cover a few days later.

remember that we are supposed to receive the first $200 in FX gain without having to report it. I was surprised to see Tim Cestnick, a well-known toronto CA doing a BNN segment on US tax reporting couple weeks ago, advising viewers to deduct this $200 from every USD stock gain! 

me i've never deducted it at all. I'm thinking perhaps cestnick is mistaken. Because if he's right, then the ideal income is to day-trade US securities for less than $200 profit each round trip, so that one will never have to pay a penny of canadian tax in one's lifetime, QED.

nah, the above won't fly, imho.

.


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## james4beach (Nov 15, 2012)

The gambit is just the mechanism. I would have the same question if I had used the broker's "convert currency" feature with no stock trade.

I originally obtained the USD at a certain rate, and by the time I do this exchange a few months later (whether gambit or convert currency any other way) the rate is different. So I may experience a gain or loss on that conversion.


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## Nerd Investor (Nov 3, 2015)

All of my US dollar transactions occur in the same year (ie: buy sell in the same year) and mostly consist of options and the occasional leveraged stock for a buy/write strategy but that is rare. As such, I've always tracked by gains throughout the year in US dollars and simply applied the average exchange rate for that year. While not technically correct, this is a pretty reasonable approach in my opinion and frankly my time is worth more than the small difference that may result if the CRA ever wants to dig in deep and attempt to calculate it using the prevailing rate on the actual day of each individual transaction.


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## evol12 (Mar 23, 2017)

I've started tracking my investments' ACB with https://www.adjustedcostbase.ca/ which when entering transactions has the option to designate it as being bought/sold with a foreign currency and then I put in the Bank of Canada exchange rate for the settlement date of the transaction. The bank only gives you the value of 1 USD in CAD actually while the adjustedcostbase.ca form asks for the value of 1 CAD in the foreign currency so you have to reverse it. (For yesterday's rate: 1 / 1.3409 = 0.7458)


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## AltaRed (Jun 8, 2009)

humble_pie said:


> remember that we are supposed to receive the first $200 in FX gain without having to report it. I was surprised to see Tim Cestnick, a well-known toronto CA doing a BNN segment on US tax reporting couple weeks ago, advising viewers to deduct this $200 from every USD stock gain!
> 
> me i've never deducted it at all. I'm thinking perhaps cestnick is mistaken. Because if he's right, then the ideal income is to day-trade US securities for less than $200 profit each round trip, so that one will never have to pay a penny of canadian tax in one's lifetime, QED.


I'd say Tim is out to lunch when it comes to the forex gain/loss per individual trade. The ITA likely qualifies it on an aggregate basis. 

As for the $200 exemption, I've never deducted it either, e.g. see the example in http://www.theglobeandmail.com/glob...ax-hit-on-us-dollar-accounts/article28440263/ I don't even know how one would report it on Sch 3 if all one is doing is buying/selling US stocks. Clearly the tax return itself doesn't have that point built-in as a line item.

http://www.advisor.ca/tax/tax-news/solve-foreign-exchange-problems-192435 talks about deducting it only on currency coversions, not forex gains/losses on purchase/dispostion of foreign securities.

I'd say there appears to be either more than one interpretation OR the articles I've linked are poorly written.

And to respond to j4b's posts above, I agree the forex currency gains is done in "Bonds, debentures, promissory notes, and other similar properties" At least UFile says so http://community.ufile.ca/index.php...re-gainslosses-out-of-forex-currency-trading/


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## humble_pie (Jun 7, 2009)

AltaRed said:


> I'd say Tim is out to lunch when it comes to the forex gain/loss per individual trade. The ITA likely qualifies it on an aggregate basis.





i rarely look at BNN but it's an OK thing to play when doing the filing or waiting for a slow pot to come to the simmer on the stove .each:

but on that Tim Cestnick episode i was surprised by the poor quality of the advice he was handing out re USD broker transactions.

for example, some gentleman phoned in to say he was pleased because he had just bought TD bank on new york in USD account. The caller believed he'd benefit from appreciation of the US dollar vs CAD. The caller was (mistakenly) very proud because he thought he was accumulating USD dividends without FX fees.

i'm only a poor dumb crumb, but the way i see it, the BNN show should deliver decent advice. This caller should have been warned about the little mistakes he was making. Cestnick CA earns high fees for supposedly delivering top-quality advice to ultra-high-net-worth individuals. He's supposed to offer the kind of brilliant advice one cannot possibly find on a hodge-podge forum pastiched together by a bunch of amateurs like us.

numero uno, cestnick should have told the caller that the broker was indeed charging FX fees on those dividends, so caller should really scoot his TD shares to a CAD account.

numero due, caller should have been told that holding interlisted canadian stocks in USD in USD account pegs these shares, via the arbitrageurs, to the mother canadian dollar tracking price on toronto. For example, USD currency could rise, but as long as the TSX price on TD bank would remain the same, the USD price on the NYSE would fall slightly.

to be sure, there are a very few stocks - potash, goldcorp, teck - where the primary market is overwhelmingly US. Like perhaps 10 times the trading volume of toronto. Theoretically speaking, for those stocks, an algo should have emerged to measure how the pull of the much higher US volume could drag the US price a little.

however i've never seen or heard of such a scholarly study. Although i'm sure jas4beach would be entirely capable of analyzing the issue & creating the algo!

meanwhile, the currency-adjusted NYSE trading in a plain vanilla interlisted stock such as TD bank will closely track the mother toronto price in canadian dollars.


.


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## AltaRed (Jun 8, 2009)

I've occasionally seen very poor (and wrong) advice on BNN from money managers who should know better as well. 

If I was an outstanding and conscientious citizen, I''d write in each time to the show host and tell them where they are mistaken and that they need to pick up the quality of their game. But then I think about how much I would be getting paid for this vs the talk jock and decide instead to lie down until the urge to respond goes away.


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## james4beach (Nov 15, 2012)

I'm not deducting $200 or anything, just reporting the capital gain/loss on FX.

I've separated this out into its own item and am reporting it on the "Bonds, debentures, promissory notes, and other" list of Schedule 3.


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## james4beach (Nov 15, 2012)

humble_pie said:


> afaik there should be little difference between the same amounts if the buy & the sell were done within minutes of each other.


You're right that there's very little difference on this part. So the gambit trade gain/loss ends up just showing the loss due to fees, a series of trades with $20 to $25 capital loss each. Reporting these is simple and it makes sense; each is a null operation.



humble_pie said:


> idk, how would you have had a separate foreign exchange gain?


I want to add some detail here in case someone else stumbles across the thread and is confused. For this part, gambits have nothing to do with it. I'd say that for most people, it's just about impossible to trace the "cost base" of those USD you're converting. You've probably had the USD sitting around for a while, converting pieces of it. What a mess. There's probably no way to trace it and report it.

My case is different. There's a part of my tax return which clearly states that I received $X of income, in USD, at an average exchange rate of 1.3248. So I am spelling out for the CRA that I have originally obtained these USD at 1.3248.

From that pile, I'm doing FX conversions. Let's say I do a gambit or any kind of conversion at 1.3916. I have originally received this USD at a cost basis of 1.3248 and have converted/redeployed it at 1.3916. So I think that's pretty clear that, for the amount that I converted, I have a capital gain. I received it at a lower cost then realized higher proceeds.

Again, this only works because it's extremely clear where the USD came from and what the cost basis was. Not only that, but I convert all my excess USD each year so it really is obtained in the year and converted in the year.

However for others who don't have a clear path of where the USD came from, and its cost basis, I don't suggest you try reporting the FX gain/loss.


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## AltaRed (Jun 8, 2009)

james4beach said:


> However for others who don't have a clear path of where the USD came from, and its cost basis, I don't suggest you try reporting the FX gain/loss.


Except technically, everyone should know what their ACB is for that USD. That is the point. For most of us, it will be recurring income from US stocks and bonds...and that can be converted to CAD at the annual forex rate each year. Keep track of that and one has their ACB for the USD. And then when the USD is used to buy something, that transaction is done at the forex rate in effect on Settlement Date. It really iis not difficult IF one is keeping track just as they would for ACB of multiple stock purchases. Then anything above $200 cap gain is taxable and goes on Sch 3.

I think I suggested before that unless folks are dealing with 5 figures in cash and/or unless there is significant movement in the loonie, e.g. from 80 to 75 cents, there is likely very little to be concerned about in terms of being offside, but USD should be one of the line items in the ACB database.


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## james4beach (Nov 15, 2012)

That's interesting, I see your point. I must admit that I never tracked my USD "inventory" until recently.


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## AltaRed (Jun 8, 2009)

james4beach said:


> That's interesting, I see your point. I must admit that I never tracked my USD "inventory" until recently.


I suspect not many do. It's just not on the radar screen and very few media articles address it. That G&M article was the first in a long time that I recall. And how many average folk read the G&M?. A good tax accountant SHOULD be asking their clients that question at tax time but I wonder how many do. In all the years I had ex-pat tax service, including for 2 years after returning to Canada, I was never asked....whether by E&Y at the time, PWC or Deloitte.


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## james4beach (Nov 15, 2012)

I think it's very difficult to track for many people. My parents have a USD bank account sitting around. They occasionally take money out of it for trips. They've added cash into it when a relative repays them for some debt. My dad has also added occasional USD earnings and reimbursements.

And what are you going to do in the end, spend dozens of hours tracking and recording this for what probably amounts to a nil gain/loss over the years? Even though I converted over 55K last year, the resulting gain was $430 (less than 1%). It's a rounding error. Next year it will probably be a capital loss.

If anything it's probably to the government's advantage that the average taxpayer isn't reporting the FX gain/loss since over time, it will likely be a net capital loss.


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## AltaRed (Jun 8, 2009)

For folks like your parents, I wouldn't track it either. If average annual balance is likely under 5 figures (and composed of both additions and withdrawals), the chances of being offside are likely negligible anyway.. FWIW, I don't track it in my Wells Fargo US domciled chequing account either (use is same purpose, i.e. fund it when necessary to pay USD credit card bills/debit purchases when travelling).


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## humble_pie (Jun 7, 2009)

recently i bought a hi-yielding US MMF. Something like .92%.

the chunk is big enough that its value vis-a-vis CAD will fluctuate up & down significantly. Unlike a bank account, a MMF is a mutual fund which is a security, so i'm assuming that the normal rules of capital gain/loss reporting for securities apply.

i took note of the bank of canada rate on the day of purchase, so that's my cost base (yikes the BOC rate was 1.3410).

then i thought about the monthly distributions, which if taken as DRIPs would increase the cost base, which would mean looking up the wretched bank of canada rate every month & calculating the addition in CAD, what a burn. This sounds like too much work for a poor dumb crumb, i said to myself.

then i hastily changed to cash distributions, so my cost base would remain unchanged, at least until i sold a portion.

does anyone have experience with a USD MMF that pays monthly distributions & did they have an efficient way to handle the inevitable appreciation/depreciation in the currency, which should be taxed as capital gains/losses?

speaking of depreciation, in the weeks since i bought the poor thing, it's lost $1000 in FX ...

.


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## james4beach (Nov 15, 2012)

humble, totally off topic, but beware the money market mutual funds. Governments and regulators have been putting out warnings about these products and saying that they will not back-stop them or prevent them from "breaking the buck" in the future. Their flaw is that they hide the price fluctuations on the underlying securities. They are corporate bond funds that don't acknowledge that they are bond funds.

In short, the US MMF is not a safe vehicle and especially not during market stress. Since we can't get FDIC insured deposit accounts in Canada, the next best alternatives are short term bond funds: MINT, SHV, BSV depending on your time horizon and risk tolerance.

Of those, MINT is the high risk/high yield type with yield of about 1.4%. Personally I prefer BSV, but that has a longer duration.


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## AltaRed (Jun 8, 2009)

No issuer would dare break a buck wih MMFs. Their credibility would collapse so they will inject as necessary to keep NAV whole. I've never thought twice about MMFs not holding their NAV. Now granted, I wouldn't put $1 million into one, but high 5 digits seems perfectly fine to me.

Back to HP, I have heard of people using the annual forex rate for re-invested MMF distributions...for the simple reason that if you took the distributions in cash, you would do that anyway. I don't think CRA will give one iota of a damn about someone doing that for re-invested distributions (but not lump sum purchases). It is what I would do if I had a USD MMF.


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