Canadian Capital Gains on US Equities (+ Foreign Exchange)

dbinontario · Post by **dbinontario** » Mon Mar 02, 2009 11:06 am

I searched the forum for some guidance on this one, but could not find anything specific.

This is for a Canadian return. In early 2008 I converted $CAD to $USD. Then proceeded to buy/sell US equities as well as fund the account with additional $USD converted from $CAD. Additionally, $USD dividends were deposited to the account and these have been filed properly for income tax. I still hold the $USD (i.e. did not convert back to $CAD).

I now need to determine my capital gains/losses. I have all the information regarding dates, amounts, and exchange rates.

How do I go about determining my cap gains/losses taking into account the foreign exchange? Do I use the $200 foreign exchange "offset"?

Here is a (theoretical) summary:

Date 1: Convert $10,000 CAD to $9,000 USD
(cash balance is $9000).

Date 2: Buy 225 shares of US stock for $8500 USD
(equity balance is $8500 / cash balance is $500).

Date 3: Dividend of $50.
(equity balance is $8500 / cash balance is $550).

Date 4: Convert $5000 CAD to $4500 USD
(equity balance is $8500 / cash balance is $5050).

Date 5: Buy 25 more shares of US stock for $4750
(equity balance is $12,750 / cash balance is $300).

Date 6: Sell 250 shares of US stock for $10,000
(equity balance is $0 / cash balance is $10,300).

nelsona · Post by **nelsona** » Mon Mar 02, 2009 2:40 pm

Obviously, I'm not going to calculate your problem.

What you are missing however is the Cdn exchange rate for EACH transaction that was made in USD, EACH purchase of stock, EACH dividend payout, each sall, and each exchange from Cdn/US dollars.

You also need to establish a 'USD' account, for which you 'buy' US dollars for a certain amount Cdn, and 'sell' them each time you buy anything with those dollars

So, looking at your problem:

You bought 9K USD on date one for $10K CAD.
You the 'sold' 8.5K USD to buy stock. You need to determine a currency gain or loss on that transaction. So you need to know the CAD exchange on date 2. On date 3, you bough 50 USD. Again you need to know the exchange rate. On 4 you bought more USD. On date 5 you sold USD (what price?) on date 6 you bought USD by selling stock.

So above is your CURRENCY transactions.

On top of that you have the cap gains that arose from your stock,which is affected by the 2 purchases and the dividend (which is taxable on its own). You need to determine these transactions in CAD each step of the way.

You cannot, as you seem to be alluding, take what you started with and what you end up with and come up with a figure. You would do this if this had been all Cdn.

dbinontario · Post by **dbinontario** » Mon Mar 02, 2009 3:34 pm

I understand what you are saying. To confirm:

I have to keep a register of all transactions on the cash portion of my USD brokerage account. Any time I buy stock (sell USD) there is a gain/loss. Anytime a dividend is deposited or I sell stock (buy USD), the average exchange rate changes.

Meanwhile, for the equity portion of the account, I have to determine the gain/loss by converting disposition and ACB to $CAD. Obviously the cap gain/loss formula is the same as per $CAD stocks.

Just one more thing: on the initial $CAD to $USD conversion (date 1), would there be an $800 capital loss ($1000 loss offset by $200 exemption)?

Thanks!

nelsona · Post by **nelsona** » Mon Mar 02, 2009 4:35 pm

Your right except for your last sentence:

There can't be a loss on the initial conversion, just like ther can't be a loss when you first buy a stock, the loss or gain only comes when you dispose of the instrument. So in your case, ther can only be a loss or gain on date 2, if the value of Cdn dollar changed such that selling 8500 USD resulted in a loss.

And the exemption you are talking about does not work the way you are saying. If you have a currency gain or loss (and it only applies to currency gains or losses) of less that $200 on a transaction, you ignore it, if it is more than $200, the entire gain or loss is not exempt.

It doesn;t mean you can exempt the first $200 of each gain or loss. It just means that small losses and gains are not reportable (otherwise, each stick of gum you bought with USD would have to be tracked).

So just so we are clear. You bought 9000 units of USD for $10K Cdn. That is
an ACB of 1.11 CAD per USD. say on date 2 you sold 8500 units of USD to by your stock. You need to know the cad exchange rate on that date.

If the cad exchange that day was 1.00 CAD per USD. You would have had a loss of $935 CAD. (8500 *1.00 - 8500 * 1.11). Proceeds minus cost basis

If the cad exchange on that day was 1.20 CAD per USD, you would have a GAIN of $765 CAD (8500*1.20 - 8500 *1.11).

If however the exchage on that day was 1.13 CAD per USD, you would have a gain of $170 CAD (8500 *1.13 - 8500*1.11) but you would report nothing, sicne it is below $200.

Simimarly if he rate were 1.09, the $170 loss would be unreported.

every time you buy something with USD, you are selling xx units of USD, with an equivalent CAD value. Likewise everytime you sell something and get USDs you are buying XX units of USD at an equivalent CAD price of that day, and this is affectingf your ACB for those USD units.