Capital gains and "like tax" application to FTCs f

[nohairleft]

As a US citizen residing in Canada, if I incur any capital gains from investment sales, I will be taxed on those gains in both countries. I understand that I can use foreign tax credits to eliminate double taxation in many cases.

Despite that, there are many scenarios in which I will recognize a gain in one country but not the other. For example, the current strength of the US$ will create lots of gains in Canada for US-denominated securities. Additionally, I also have different ACBs for securities in Canada vs the US based on the value of the assets when I became a Canadian resident in a previous year.

When I go to file my FTCs, I recognize that capital gain-type income can only be offset against a "like tax" of capital gain income paid to the other state.

But does "like tax" require that it be tax paid on the same exact asset, or will any sort of capital gain tax be acceptable?

For example, suppose that I sell US-denominated stock "XYZ". XYZ has been trading flat all year, but I incur a capital gain to Canada of C$125 due to currency fluctuation. There is $0 gain on the US side because the US$ price hasn't changed.

At this point, I can just suck it up and pay the tax on the CGs in Canada, even though I won't get any credit for it on the US side because I didn't pay any tax there.

But now, what happens if I sell a different stock "DEF" later in the same year, which results in US$100 gains south of the border, but (for argument's sake) $0 in Canada because of having a different ACB and currency, etc.

In that case, are the capital gains paid on my US$100 gain something that I can offset against my C$125 gains (ie. all the gains are lumped together)? Or does the opposite country's tax have to be paid on the same asset?

If I can lump similar assets together for FTC purposes, it seems like it would be advantageous to try to harvest gains in the opposite country within the same tax year as needed to equalize the amount of taxes paid, or else I feel like I'm leaving money on the table (since this allows me to step up my cost basis "for free" in the other country, if I can find the right combination of assets).

Does that seem correct?

[nelsona]

the tax need only be on income from the 2 categories: passive or general.

As I have explained elsewhere, having investments in one country that are taxable in the other ALWAYS produces unwanted tax in one country or the other when there is fluctuations is currency exchange.

This will always be the case. the advantage is that US allows you to carry forward unused FTC but Canada does not.