currency exchange + capital gain

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hector
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Joined: Tue Apr 01, 2008 4:14 am

currency exchange + capital gain

Post by hector »

I'm Canadian, moved back to Canada in June 2007 after living in US on H1B for number of years. I'm confused by some things I've read here about currency exchange and when it triggers cap. gain tax. My situation:

May 2006: I transferred money from US bank to a Canadian bank, converting it into Can. dollars. I was living in US that year and was non-resident of Canada (the Can. account was NR.)
June 2007: I moved back to Canada.
Aug 2007: I transferred more money from the US to my Canadian bank, converting it into Can. dollars.
Between May 2006 and June/Aug 2007, the Can. dollar gained strenght, but I havn't exchanged it into US or any other currency and don't plan to, so I haven't 'realized' a gain. Does this still count as a taxable gain for my 2007 US taxes, which I'm filing now? And what about my Canadian taxes?

Thanks for the help.
nelsona
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Post by nelsona »

You would have to trigger the gain. Technically, every time you spend a CDn dollar, you are triggering some US gain, but the threshold is $200 of gain per transaction.

So if you buy a car cash with $30,000Cdn which you transferred from US to Cdn in 2006, you would trigger a sizable cap gain that you would need to report on your 1040. If instead you paid the car of in monthly installments of $500, you would not have a $200 gain on each transaction, so would be fine.

It is the TRANSACTION of switching large sums of foeign (Cdn) currency into anything else (gold, stocks, bubble gum, or Yen) that triggers the gain.

Any gain/loss on Cdn currency value does not affect your Cdn tax return, which is always reported in Cdn$
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hector
Posts: 36
Joined: Tue Apr 01, 2008 4:14 am

Post by hector »

Thanks. I haven't spent/converted the Can. dollars yet (besides a little bit in very small amounts) and am not planning to this year. I'm filing my last US return for 2007 since I'm no longer a US resident this year and plan to stay in Canada permanently. (No green card; Canadian citizen.) To make sure I undrstand this right:

1. I don't have any capital gain on my 2007 tax return since I didn't use/convert the Can. dollars before the end of 2007? Is that right?

2. if I exchange/spend a large enough amount of the money (which I converted to Can. dollars BEFORE leaving the US), but do so in Canada AFTER I'm no longer a US resident (i.e. 2008 or later) do I still have to trigger a capital gain that I'm supposed to declare in US as a non-resident during the year I exchange/spend the Can. dollars?
nelsona
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Post by nelsona »

1. Correct.

2. No gain, since you are not reporting in US anymore. Cap gains/losses are not reportable in US for non-residents.


Do we really need to spend more time on this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hector
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Post by hector »

Thanks nelson. You are a HUGE help!
hector
Posts: 36
Joined: Tue Apr 01, 2008 4:14 am

Post by hector »

shoot. more clarification: does buying shares in a money market account/fund at my bank count as triggering the cap gain?

or (less likely) what about a GIC?
nelsona
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Post by nelsona »

This is 2008, you are no longer taxable in US. What you do from this point forward cannot trigger any US capiatl gains.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hector
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Post by hector »

I got that. but I put the money in a money market account in 2007 (still filing tax in US.) In my mind the account was/is "cash"; but it hit me after your earlier post that it's technically a kind of "security" (unlike, say a savings account, or GIC) so might count as being like buying "stocks, gold, bubblegum, etc"

why didn't I become an accountant??? life would be much easier.
nelsona
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Post by nelsona »

Then yes, the the buying of a mutual fund with that money is a disposition of the currency . You what the proceeds were (the amount you put in the market account, in US$). Now all you have to do is figure out the average cost of those C$.

Good luck.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hector
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Joined: Tue Apr 01, 2008 4:14 am

Post by hector »

The accounting terms are like ancient greek to me (cost basis; avg cost) :(

But I'm assuming that the "cost" of the Can dollars (which I put column e of Sched D) is the amount of US dollars I paid for them originally, in 2006. So the "gain" (column f) would be the difference b/t what they were worth (in US$) when I first converted them in '06 and what they were worth when I bought the moneymarket in Jul '07. (They sat in a GIC in the meantime; I've declared the interest on that GIC as income, which I did also put into the money market.)

I hope I'm on the right track here? Sigh.
hector
Posts: 36
Joined: Tue Apr 01, 2008 4:14 am

Post by hector »

The accounting terms are like ancient greek to me (cost basis; avg cost) :(

But I'm assuming that the "cost" of the Can dollars (which I put column e of Sched D) is the amount of US dollars I paid for them originally, in 2006. So the "gain" (column f) would be the difference b/t what they were worth (in US$) when I first converted them in '06 and what they were worth when I bought the moneymarket in Jul '07. (They sat in a GIC in the meantime; I've declared the interest on that GIC as income, which I did also put into the money market.)

I hope I'm on the right track here? Sigh.
nelsona
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Post by nelsona »

The interest would be part of the cost as well, since it is already declared.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hector
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Post by hector »

I think I'm slowly getting this. Thanks Nelsona. You are a national -- no, make that a bi-national -- treasure.
taraB
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Joined: Sat Mar 22, 2008 3:59 pm

Post by taraB »

The Personal Tax Planner Guide that the Canadian Istitute of Chartered Accountants says that:

"total net gains or losses of $200 of less in a year on foreign exchange investments are not reported on your return. If the gain or loss is greater that $200 you have to report it."

I read that to mean that it was cummulative of all your foreign exchange transactions within the year. Where is the rule about $200 per transaction to be found? There is a world of difference between the two.
nelsona
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Post by nelsona »

The US uses the $200 per transaction.

If you wish to acount for every penny you spent in Canada, go ahead.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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