# Gains from USD/CAD exchange rate



## cheetah (Feb 10, 2014)

I am a new PR in Canada. If I convert about 100k in USD (already in my Canadian account) to CAD @ 1.09(which my bank is offering me at this time), will I have to pay any taxes to the CRA for the gains ?


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## Guban (Jul 5, 2011)

You may have to pay capital gains on increases in value. However, are you sure you don't have a capital loss? What was you US dollars worth in CAD when you became a resident of Canada? With the dropping loonie, you my have a loss.


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## humble_pie (Jun 7, 2009)

guban is quite right, look carefully at the Bank of Canada noon exchange rate on the date you entered canada (note this is not necessarily the same date that you may or may not have brought the actual USD currency to a canadian bank.)

that rate will apply to your currency cost base.

here's the CRA interpretation bulletin on reporting capital gains/losses on CAD/USD currency exchanges. It looks daunting but it is indeed comprehensible to a lay person. I once read this thing & lived to tell the tale.

http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html


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## humble_pie (Jun 7, 2009)

BTW cheetah Stop The Car!

don't go with the bank offered FX rate. There is an ancient strategy called arbitrage that will permit you to exchange your entire $100k at spot aka wholesale aka Bank of Canada rates.

in recent years this has been popularized as currency gambit trading. There is a ton of internet literature on this, you'll be able to find the lit easily.

basically the action consists of buying an interlisted canadian security such as royal bank on - in your case - the new york exchange. You'd pay in US dollars. Quick as a wink, without losing a second, you'd sell the same shares on toronto exchange. You'd receive canadian dollars.

because of the pro arbitrageurs who are constantly working this market, you will receive the same wholesale FX rate that the treasury floors of the money-centre banks receive, as they swap giant blocks of currencies around the globe. In effect you will be riding on the arbs' coattails.

there are some knicketty knacketty details that govern this pair trade, but it's well worth doing for a large amount such as 100k. You would save thousands of $$ in bank FX fees. So study up on gambit trading, come back with a few questions & we will help you.


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## leslie (May 25, 2009)

I disagree with the posts above. The gain/loss that is taxable on your Income Tax form on Schedule 3's capital gains, is the change in value of the USD held between entry to the country and the time of conversion to Loonies. If (since) the Loonie has fallen in value recently there is a high probability this will result in a gain, not a loss, for you. (You held an asset that increased in relative value).

The relevant tax rules are at http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html The FX rate on the day you arrive comes from http://www.bankofcanada.ca/rates/exchange/10-year-lookup/?page_moved=1 The rate at which you converted to Loonies is what you actually got.

Gains of $200 (or $300 check on that link) need not be reported.


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## humble_pie (Jun 7, 2009)

leslie is not disagreeing, he's agreeing each: for a change each: each:

cheetah might have a gain on paper. Or he might have a loss on paper. He says he has not yet carried out the conversion, so the inventory of currency is remaining in USD for the time being & no taxable event has yet occurred.

he should look at the bank of canada noon rate on the day he entered canada (the day he was deemed to have brought his assets with him, regardless of whether this happened in reality or not.)

that rate will determine the reportable cost base, in CAD, of his inventory of US dollars when he goes to convert them.

here's the BOC currency converter:

http://www.bankofcanada.ca/rates/exchange/10-year-lookup/


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## cheetah (Feb 10, 2014)

Thanks all for the replies.

Humble_pie
I will look into the arbitrage trade but I will pass if there is any risk in trading securities .

Leslie, Yes, That is what I thought.
I held USD which got stronger --which implies gains for me. I entered in Feb 14 when USD equalled 1.1080. Now it is 1.1150 but I will get only 1.09 from the bank.
Does that mean reportable loss for me?
thanks


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## humble_pie (Jun 7, 2009)

cheetah said:


> Thanks all for the replies.
> 
> Humble_pie
> I will look into the arbitrage trade but I will pass if there is any risk in trading securities .
> ...



if the bank of canada or XE.com are hovering around 1.1150 today, why would u even think of going with a bank offered rate of 1.09?

such a rate would be so unreasonable that i'm left wondering whether 1.1150/1.09 is actually the spread rate that was quoted to you, not necessarily the FX fee which the bank would be charging, an amount that is built into their quoted spreads but not visible by itself.

one determines what kind of FX fee a bank has built in for itself by comparing their rate to a global bellwether such as bank of canada noon rate or XE dot com, which updates minute-by-minute.

on 100k, banks & other reputable currency exchange houses should be offering an FX fee that is significantly less than 1%, ideally one might look for 60 or 70 basis points ...

knightsbridge is said to be a good house with decent rates, or go through XE.com.

PS if you do go with the bank rate & if your cost conversion rate was 1.1080, you would indeed have a taxable loss.

nasty, no? now you see why the arbs rule.


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## liquidfinance (Jan 28, 2011)

If you are a new pr then one thing I will add is that those funds are deemed to have been converted to CAD the very day you became a permanent resident. 

That day is where you get your cost base for tax purposes. 

You will have a capital gain or loss on the difference between the day you became pr and the day of exchange.


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## leslie (May 25, 2009)

@ cheetah.
One aspect of FX in Canada that drives me batty is that the exchange rates most often quoted are the inverse of 'what I think'. Eg. When I see a FX quote for the Loonie increasing, I THINK the Loonie must be getting stronger. I THINK of the Loonies FX value today as $0.895 (http://forex.tradingcharts.com/chart/Canadian Dollar_US Dollar.html) , not 1/0.985 = 1.117. But in the FX industry there is a convention in many situations to quote the ratio flipped upside down. So a decreasing quote shows the Loonie getting strong. Be very careful which FX rate you use in which situation. The link I gave to the Bank of Canada quotes, gives the FX rate both ways. 

Since in the recent few years the Loonies value (the way I think of it) has been below par, the FX rates you quoted (1.108 and 1.115) are really (0.9025 and 0.8969) showing the Loonie falling in value (and USD gaining) by.0.8969/0.9025-1= 0.6% (or 1.115/1.108-1 = 0.6%).. Your gain (not loss) is this 0.6%. If you deal with FX repeatedly I have found it best to decide once and for all WHICH way you will ALWAYS record the metric.


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## dave2012 (Feb 17, 2012)

I just checked online with my CIBC Forex. I could sell US dollars at $1.1105. The spread is around .0066.


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## AltaRed (Jun 8, 2009)

liquidfinance said:


> If you are a new pr then one thing I will add is that those funds are deemed to have been converted to CAD the very day you became a permanent resident


I believe this could be interpreted wrongly. The day one becomes a permanent resident is not necessariy the same as the day the person become a resident for tax purposes in Canada. The day the person entered the country is the day used for tax purposes (as I understand it, permanent residency usually/sometimes comes at a later date).


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## liquidfinance (Jan 28, 2011)

AltaRed said:


> I believe this could be interpreted wrongly. The day one becomes a permanent resident is not necessariy the same as the day the person become a resident for tax purposes in Canada. The day the person entered the country is the day used for tax purposes (as I understand it, permanent residency usually/sometimes comes at a later date).


True. It depends on the individual and if they were resident for tax purposes. More than likely it is the day an immigrant becomes pr. Either way whatever day you decide to report as the day you baceme tax resident is the day the you use for the cost base of the currency.


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## humble_pie (Jun 7, 2009)

soon after dave20112 posted i checked XE dot com & it was showing 1.11795. So one can see that, at 1.1105, the CIBC is taking a normal FX fee for themselves. A normal fee, certainly not a greedy fee.

rates such as the 1.09 that cheetah was mentioning are beyond robbery, though. They're boko haram attacking unarmed villagers in the jungle.

it's interesting that it's still so difficult for small retail investors to avoid FX fees, or even deal with FX fees. 

a major tool for workaround is gambit/arbitrage trading, but this is challenging for many persons.

meanwhile, as global networks grow ever faster & more efficient, it gets cheaper & cheaper for big bank treasury departments to conduct their currency operations. They should be passing on those benefits to consumers, but as we can see this is not happening yet. I guess it's a story in-the-making (i love sniffing out stories-in-the-making.)


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