# Realized Capital Gains that remain in US Dollar Account



## Todd1966 (Feb 23, 2015)

I have asked this question to several people in my area with no clear answer.

I hold US stocks in a non-registered US Dollar Margin (trading) account with TD Waterhouse.

I understand that I calculate realized capital gains by tracking the purchase costs and sales proceeds by using the exchange rate on day of execution.

*My question is that if I don’t physically exchange the proceeds back into Canadian dollars why do I need to include the gain due to exchange rates.

*My example would be:
Bought 100 shares of Occidental Petroleum (OXY) on Mar 15, 2011 at 97.9128 USD, that converted that day to CDN dollars $96.2483 per share
Sold 100 shares of Occidental Petroleum (OXY) on Sep 5, 2014 at 101.0938 USD, that converted that day to CDN dollars is $110.0087 per share
The capital gain on stock is $318.10 in US dollars and converted to CDN dollars is $1384.04 (of which $1065.94 is due to the exchange differential)

The monies started out in a US dollar account and are still in a US dollar account.
I am told I need to claim the $1384.04 as the capital gain on this year’s tax return.
I don’t see why this should happen because if exchange rates go back to par before I actually convert any monies back to Canadian I haven’t realized the gain.

Is there a proper way to calculate what needs to be reported to CRA?

I am sure there are many other investors that are doing what I am being told and need to know the true way to report this.

Thanks,
Todd1966


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## Eclectic12 (Oct 20, 2010)

As I understand it ... the issue is that CRA (and maybe the income tax act?) require that regardless of the currency, the cost/proceeds etc. be recorded on the individual's tax return in CAD. I believe this is regardless of what currency it is currently in.

http://www.milliondollarjourney.com...tal-gains-tax-in-a-non-registered-account.htm
http://www.taxtips.ca/personaltax/investing/taxtreatment/shares.htm
http://www.advisor.ca/tax/tax-news/taxation-of-foreign-investments-2375
http://en.planiguide.ca/tax-planning-guide/section-7-investments/capital-gain-loss/


This as well as the RRSP being exempt from the US gov't 15% dividend withholding tax is why some investors will choose to hold most, if not all of their US holdings in an RRSP or TFSA.


I leave it to those with more experience or knowledge to confirm or point out any errors with the links as I don't have any US stock in a taxable account.

Cheers


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## CPA Candidate (Dec 15, 2013)

Are you really surprised the CANADA revenue agency needs amounts reported in CDN? They are taxing your gain in CDN dollars.


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## tenoclock (Jan 23, 2015)

Because you report amounts in Canadian dollars on the Canadian return. The US does the same. 
Look on the bright side, if US dollar gets weaker, you get to reduce your gain due to fx rate.

Cheers


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## Todd1966 (Feb 23, 2015)

Well, leave it to the CRA to rain on my parade after such a great gain on the Fx. It still doesn't seem fair when the funds are kept in US dollars, which I thought was to limit my exposure to Fx movement. It looks like I should look at moving some of these US stocks into my RRSP/TFSA. The way I understand, I won't need to pay the 15% withholding tax and the Fx factor doesn't apply as the gains are not taxed in any case. Thanks for the input.

Todd1966


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## AltaRed (Jun 8, 2009)

It is fair because over the very long run, forex rates generally zero out. CRA has to tax you on CDN equivalents because that is the legal currency of this country. Just be happy you have a real gain in loonie terms. It is your choice to keep USD or not.

Generally speaking, don't sweat the small stuff. We all have USD currency that rise (or fall) in value relative to our base currency depending on forex rates. If it bothers you that much, reinvest the USD into another USD product.

Added: In over 35 years of dealing with both USD and CDN in my personal financial affairs, I have seen forex rates go back and forth at least a few times.


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## warp (Sep 4, 2010)

Todd1966 said:


> Well, leave it to the CRA to rain on my parade after such a great gain on the Fx. It still doesn't seem fair when the funds are kept in US dollars, which I thought was to limit my exposure to Fx movement. It looks like I should look at moving some of these US stocks into my RRSP/TFSA. The way I understand, I won't need to pay the 15% withholding tax and the Fx factor doesn't apply as the gains are not taxed in any case. Thanks for the input.
> 
> Todd1966


NOTE: there will be no US withholding tax in your RRSP...but there WILL be US withholding tax on dividends of 15% on stocks, and 30% on US Reits and LP's in your TFSA, ( and RESP).

This is because the USA does not recognize TFSA and RESP accounts as retirement accounts.

Other foreign countries charge withholding even in an RRSP, for their home stocks bought in New York....Spain, for one.....check before buying.


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## peter344343 (Mar 10, 2016)

I have been thinking about this and was wondering if this is not double taxation?

You start an account with $100 USD (original cost basis 1:1).

You buy 100 shares of XYZ for $100 USD = $100 CAD cost basis.
You sell 100 shares of XYZ for $200 USD when exchange rate is 1.3 to 1 = $260 CAD.
Gain: $160 CAD. 

Bank account: $200 USD.
Convert $200 USD to CAD when it's 1.3 exchange rate again = $100 @ 1:1 and $100 @ 1.3 
Gain: $30.

But isn't the 2nd $30 gain embedded in part in the gain on the calculated sale of the security since you never converted the funds but paid the capital gains tax anyway? If you then convert the funds (and assume the exchange rate is the same as when you sold the security) then would this be a second tax? Or has the cost basis of the $200 US dollars adjusted upward to 1.3 so that only gains above that are taxed?

This gets even more complex if you have embedded capital losses due to currency. Then on subsequent conversion of the funds you kept in the US account at the same exchange rate wouldn't you have the same issue?

In other words, if there was no embedded gain/loss due to currency from an investment this would be easier but when it's included and you never converted the currency back but did so later, would you claim another tax or have to track 2 moving variables?


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## Eclectic12 (Oct 20, 2010)

warp said:


> NOTE: there will be no US withholding tax in your RRSP...but there WILL be US withholding tax on dividends of 15% on stocks, and 30% on US Reits and LP's in your TFSA, ( and RESP).


This is good info ... though there are a few tweaks.

Another thread that talked about a US investment held a Canadian broker that was charged 40% so YMMV.

Secondly ... with the popularity of ETFs as an easy strategy, there are articles saying that where one holds a US domiciled ETF in one's RRSP, the ETF is charged the US withholding tax. In a taxable account, one can recoup the tax but since there is no Canadian tax in an RRSP - one loses the tax. Not huge amounts but a loss none the less.
http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/
http://canadiancouchpotato.com/2012/09/20/foreign-withholding-tax-which-fund-goes-where/

Holding US common stock does not have this issue.




warp said:


> ...check before buying.


Always a good thing.


Cheers


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## Numbersman61 (Jan 26, 2015)

Eclectic12 said:


> This is good info ... though there are a few tweaks.
> 
> Another thread that talked about a US investment held a Canadian broker that was charged 40% so YMMV.
> 
> ...


The issue regarding the 40% withholding tax related to a distribution from a US master limited partnership - not a conventional security


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## Numbersman61 (Jan 26, 2015)

If you have substantial US funds, you may wish to consider Enbridge Preferreds which pay a dividend in US$ ENB.PF.V


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## hboy43 (May 10, 2009)

Hi:

This situation is even worse. You have to take the $US proceeds and add them to your other $US to get your new ACB of $US. Then if you a few minutes later buy another security with $US, you have now sold $US and potentially have capital gains on the currency. There is a $200 waiver/threshold or whatever on currency capital gains, so usually with small investors and slow moving exchange rates, we all just ignore the ACB and gains/losses of currency.

Except I got caught 2014 tax year and realized I was likely over the $200 limit. After about a day of trying to mine $US transactions going back many years to get a number, IIRC I had $900 currency gain worth all of about $100 in tax. In the end I had to make up some sort of reasonable starting point going back 3 or 4 years as there was no way to ever recreate the reality which likely goes back 20 or 30 years. So in the end, I likely under or over paid by $50, but trust they won't hunt me down for what I did.

The trouble was mostly caused by holding > $US5000 in an account to get fees waived. In the end, my conclusion was if we ever get back to parity, I am going to hold ~ zero and pay the $5/ month fee to avoid a similar future tax headache - on the way back to parity there will be capital losses so I won't be shortchanging the crown by not tracking it. Or better still, close the account if it does not create other headaches - and I think it does as I don't think I can pay my $US credit card directly from my $US margin account without the intermediary account.

hboy43


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