Any idea about foreign currency gain tax?

newbie12345 · Post by **newbie12345** » Thu Jul 26, 2012 9:39 pm

For example, in year 2005, I moved to U.S. leaving my $100,000 canadian dollor in my canadian checking accout. At that time, the exchange rate from canadian to us is 0.85 so $100k canadian dollar worth $85k USD

In year 2010, I decided to close my canadian bank account convert the canadian dollar into U.S. and transfer them to my U.S. bank account.

the rate of this year is 1:1 so I get $100k USD.

Do I need to pay tax for the different i.e. $15k ?

IRS pub 525 says:"Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates. if the gain is more than $200, report it as a capital gain"

nelsona · Post by **nelsona** » Mon Jul 30, 2012 11:01 pm

Yes, this is classic currency gain and is reportable. The gain is triggered by "spending" your Cdn dollars, be it into an investment, a purchase or a conversion to another currency.

Only if the gain was les than $200 is this negligible.

newbie12345 · Post by **newbie12345** » Tue Jul 31, 2012 10:50 am

Thank for the information.

1. I never convert from U.S. Dollar to canada dollar and re-convert them back to U.S. dollar. These canada dollar cash are earned during the time I lived in canada as canadian resident. Is it still a taxable transation?

2. If I did not convert the currency into U.S. dollar, instead I deposit it into my U.S. bank and they convert it into U.S. dollar. does the rule still apply?

3. If it is, what cost basis should I be using? (which year exchange rate apply?
- year 2005 since that is the first year I report to IRS as resident?
- early year where I earn this money ( it is very hard to identify which dollar save at what year )

- year 2008 exchange rate since that the time rule first apply?

4. Should I report it as regular capital gain? Would the 15% long term capital gain rate apply? or it should be reported as "normal" income or any other rate like %38?

I have more than $25000 capital lost carried over to year 2011 from 2008. I have used $3000 to offset my normal income in year 2011. Could I use some other $15000 capital lost to offet the $15K "gain" in year 2011?

I appreciate your helpful information!

nelsona · Post by **nelsona** » Tue Jul 31, 2012 11:23 am

1. You converted Cdn dollar to US dollar. That is enough.
2. Yes. You are still converting it to something other than C$. Could be anything, chewing gum, car, mutual funds, gold, Euros, rupees, USDs. You are selling C$ that had a USD cost basis when you first got them, and now have a differnt value in USD, and are in sufficient quantity to trigger cap gains.
3. Technically it should be from the years you got those funds, not just the arrival date, but if you cannot pinpoint that accurately, I have no problem using the date just before you began filing a US tax return.
There is no "time rule". If you bought stock in 1991, and you sold it now, it would still be taxable based on cost basis.
4. It is long-term, since you held the C$ for a year or more.

tsanaha · Post by **tsanaha** » Tue Jul 31, 2012 4:18 pm

What if these Canadian currency were in mutual fund which is considered as PFIC by IRS. The MTM gain calculation should have taken care of the exchange value gain/loss ?

nelsona · Post by **nelsona** » Tue Jul 31, 2012 5:07 pm

MTM was only required in the last year. Before that is was never done. If one forgot to MTM, one cannot take credit for it, as no change to the cost basis occured.

newbie12345 · Post by **newbie12345** » Mon Aug 13, 2012 12:57 pm

Hi Nelsona,

Has to check with you again:

Do I need to report any thing to revenue Canada for the currency exchange transactions ?

I did exchanged some canadian dollar into U.S. dollar in 2005 before I moved to U.S.
If I need to, how should I calculate my income and what type of income is this transaction?

After that, I did exchange some left over canadian dollars into U.S. dollar after moved to U.S.
If I need to, how should I calculate my income and what type of income is this transaction?

Thanks a lot in advance!

nelsona · Post by **nelsona** » Mon Aug 13, 2012 4:12 pm

You had Cdn dollars, so there is no currency gain in the eyes of Canada.

newbie12345 · Post by **newbie12345** » Mon Aug 13, 2012 4:26 pm

So Canadian dollars are not treated as property and not subject to Deemed disposition tax to canada?

What about the U.S. Dollar I hold in my hand before moved to U.S.?

nelsona · Post by **nelsona** » Mon Aug 13, 2012 5:02 pm

No, they are not subject to deemed disposition. but I'm quite sure you did not have a subtantial gain during that period.

newbie12345 · Post by **newbie12345** » Mon Aug 13, 2012 10:08 pm

I don't have gain since
1. I did not change $US dollar back to canadian dollar

2. The exchange rate is rising so that the exchange rate of all my transaction is lower than the exchange rate the day I left canada.

Just to confirm: US dollars holding in my hand before I left canada is not treated as property so the US dollars is not subject to property disposal tax ?

nelsona · Post by **nelsona** » Tue Aug 14, 2012 2:57 am

Foreign currency (non-CDn) is subject to deemed disposition. Only if the gain is greater than $200 is it reportable. The loss is not reportable.