# Forgotten foreign exchange gain / loss over last few years



## petrelli (Apr 30, 2017)

Newcomer to the community looking for some guidance.

*Just realized that over last few years I have not been counting my foreign exchange gains / losses. I was previously unaware that >$200 gain/loss has to be reported to CRA. Have submitted all tax returns without ever mentioning this. Would really appreciate help from anyone who has dealt with this before*

*Situation:*

1. Moved to Canada in late 2014

2. Had ~USD25K in a US bank account (savings with 0.25% interest) on the day I moved

3. During 2015, 2016 and 2017, I have gradually used these funds to pay bills for US credit cards or manage expenses during frequent US trips. I thought since I was paying bills in USD and never converting them back to CAD, I didn't have to worry about gains/losses. Based on research I did today, I believe this is incorrect

4. The funds remained in the same USD account throughout

5. Never added any new funds to that USD account except for a gift that I received in USD from overseas which was sent directly to that account
If my understanding is correct, my cost basis for these USDs is the day I became a Canadian resident. Doing some rough math, I have a capital loss of more $3K.​
*Questions:*

a. Do the foreign exchange gain/loss tax rules apply to this situation? (i.e. is my understanding correct?)

b. If yes, then how do I go about amending my 2014, 2015 and 2016 tax returns. Don't want to confuse CRA and have them start auditing me for the rest of my life but also want to report this. My 2014 return was done by paper, and 2015/2016 returns were filled by simpletax. I have already amended my 2015 return once, so don't even know if I can amend it a second time.

c. Is there an option of not amending my previous returns and just reporting these gain/losses cumulatively from 2014 to 2017 in my 2017 tax return? I am happy to wait a year​
*Would really appreciate any advice or insight on the next steps for me. Thanks a lot*


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## Spudd (Oct 11, 2011)

If it's a loss, you don't *have* to report it, as it would reduce your taxes owing instead of increasing them. 

If you want to report it, then you can amend your previous returns using the instructions on this page:
http://www.cra-arc.gc.ca/nwsrm/txtps/2015/tfsk13-eng.html

You cannot just report it on your next tax return.


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## mordko (Jan 23, 2016)

Obviously it's a gain but given the amount of $s involved, the low interest you received and that you were spending in USD, I doubt this is worth the effort for either you or the CRA. As you never converted the funds to CAD, only the income would have been taxable anyway. 

If I were you, I would give them a call and ask.


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## petrelli (Apr 30, 2017)

Spudd said:


> If it's a loss, you don't *have* to report it, as it would reduce your taxes owing instead of increasing them.
> 
> If you want to report it, then you can amend your previous returns using the instructions on this page:
> 
> ...


Quick math tells me that it's a capital loss of $3k+. I pay capital gains at the highest rate, so reporting it will be advantageous. It's not an insignificant amount of money.

Am I correct in assuming that my cost basis for these USDs would be the day exchange rate on the day I became a Canadian resident?


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## petrelli (Apr 30, 2017)

mordko said:


> Obviously it's a gain but given the amount of $s involved, the low interest you received and that you were spending in USD, I doubt this is worth the effort for either you or the CRA. As you never converted the funds to CAD, only the income would have been taxable anyway.
> 
> If I were you, I would give them a call and ask.


Why do you think it's a gain instead of a loss? My thinking is that my cost basis for these USDs was the exchange rate on the day I became a Canadian resident. Since then the loonie has depreciated.

I realize I technically never converted them back to CAD but a quick google search tells me that a gain / loss is realized if I use to make purchases or fund expenses. Analogy would be if you use USD dividends / USD funds realized through stock capital gains to purchase things in the US. Even though you never converted these funds back to CAD, a capital gain / loss is realized. 

Does this all make sense or am I missing anything? Thanks a lot.


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## mordko (Jan 23, 2016)

If the loonie depreciated since you became a citizen (which it did) then it's a gain. Basically the number of CAD in your USD account at that point was smaller than it would be now for the same quantity of USD, so you gained in CAD terms. 

Can't say that I am 100% certain about spending your USD on credit card debt and other USD purchases, but I would have thought that shouldn't trigger taxation. Certainly had you purchased an asset like shares it would have but you were basically spending so its different. In my opinion the only tax you owe is on the 0.25% interest but I could be wrong.


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## AltaRed (Jun 8, 2009)

1. Your cost basis for your USD is indeed the CAD equivalent on the day you entered Canada.

2. Each time you used USD to purchase something, you have made a transaction that triggers a forex loss or gain, but only for the amount you used at each transaction. Technically, it would be the forex of the day you spent USD funds on each transaction but if you had numerous transactions each year, I suspect CRA wouldn't object to you using the annual average forex rate. Since the loonie depreciated since your arrival to Canada, you would generally be seeing gains (not losses) because your CAD equivalent for those USD funds will have gone up (in value) since your arrival in 2014. Example: $10000USD @ 0.95 loonie = $10526 CAD..... $10000 USD @ 0.75 loonie = $13333 CAD That is a gain of almost $3000, not a loss. 

3. You would have to amend your prior year returns using T1-ADJ for each year to correct the error. That means more taxes to pay and CRA will charge interest for the period the taxes were due but not paid.. but it won't be much. Interest rates are low. I doubt CRA would charge penalties.

4. It is up to you whether you go back and amend 2014 and 2015.... or just start with 2016 and move forward from there. It is a relatively innocent mistake to not have declared forex gains for foreign currency used to buy goods and services. I suspect the majority of tax accountants are not aware of this wrinkle and that virtually no individual taxpayer is aware. The first $200 is not reportable in any event. It would have been different if you had used a big chunk of the USD to buy a USD stock or other asset....in which you must record your Cost Base in CAD equivalent (a well known concept). I think I would just 'start' now and move forward.


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## AltaRed (Jun 8, 2009)

mordko said:


> Can't say that I am 100% certain about spending your USD on credit card debt and other USD purchases, but I would have thought that shouldn't trigger taxation. Certainly had you purchased an asset like shares it would have but you were basically spending so its different. In my opinion the only tax you owe is on the 0.25% interest but I could be wrong.


Indeed you are wrong (discussed extensively in other threads) but easily misunderstood. I never knew about this for perhaps 40 years either, albeit I never accumulated any USD, or had USD investments for most of those years..... and albeit the loonie mostly appreciated from the mid-90s until about 2008 or so. Just was not worth going back to 'fix' it and don't think CRA staff care to spend their time with me fixing it either.


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## mordko (Jan 23, 2016)

So, a Canadian retiree, who spends winters in Florida and has funds in a US HISA triggers capital gains every time he goes to a supermarket or buys a Mars bar on his USD debit card? That sounds like a lot of fun.


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## AltaRed (Jun 8, 2009)

mordko said:


> So, a Canadian retiree, who spends winters in Florida and has funds in a US HISA triggers capital gains every time he goes to a supermarket or buys a Mars bar on his USD debit card? That sounds like a lot of fun.


Indeed he does.... which is absolutely absurd. I'd suggest 99% of people are either not aware of that or don't give a **** about it. In the worst case, I suspect the right answer would be to use the annual forex rate for the portion used in each calendar year.


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## petrelli (Apr 30, 2017)

Thank you all. Everything is super clear. Really appreciate the details and additional color provided.


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