Exchange gain/loss on US$ at time of move to Canada?

[Flyingdog]

I am a dual citizen and file both US and CDN tax returns. I moved back to Canada in 2021 when the exchange was at 1.25. I had no income in 2021 and 2022, so I did not have any issues. My US brokerage account at the time of the move had US stocks and US dollars. I moved the account to Canadian brokerage in 2022. Currently, all of my US stock transactions are purchased by US$ I had before I return to Canada. They are now in a Canadian brokerage account holding US cash and stocks. I understand that I have to use the FMV of the stocks using exchange rate on the date of return to Canada as my basis for Canada tax reporting when I sell those stocks.
My questions:
1. Do I have to calculate a CAD basis for my US $ (old) and “convert” it to Canadian currency on paper even though I did not actually convert my US to CAD?
And my US $ became $XX US x 1.25 = $YY CAD

2. If so, do I need to calculate any exchange gain/loss anytime I use it to buy US stock even though no actual conversion took place (US$ buy US stock). In another word, do I need to calculate the difference between the rate at the time of my entry into Canada (1.25) and stock purchase (1.35)? Since US to CAD is around 1.35 now, does that mean I will have a currency gain of .10 anytime I use the “old” US to buy US stock?

a. Date of purchase stock (say exchange at 1.35)
b. Report at time of buy stock - Foreign exchange gain/loss on “old money” (1.35-1.25)
c. Stock basis in CAD (US purchase price at 1.35)
d. Report when sell stock @ 1.3 (1. report exchange loss of .05 and 2. stock gain/loss)


3. Same as the above. Do I have to calculate any currency gain/loss when I buy T-bills using existing US$? When the T-bill matures, I have to calculate currency gain/loss on the rate difference (Date of purchase T-bill and date of sell) again? Then using average rate on the interest income?

4. What about US bonds? Same treatment as 3?

My Canadian brokerage sent CRA a T5008 on the US bond purchase. They put CAD as the currency on box 13. I have no idea how they figure out the amount. Should I be worry about this and call the brokerage? I see that the brokerage also sent me a FX realized summary but the amount is not report on the T5. I do not agree with their numbers but do I have to report it on my T1?
Any info is appreciated.

[nelsona]

For all investments, you report the cost and proceeds in the currency of the return, at the time of buying and at the time of buying. Your cost basis for Canada would be based on the value when you moved; the moment of transfer to a CDn brokerage has no bearing. For your 1040, you report the basis and proceeds as normal, in USD.

Only currency would be subject to exchange gain/loss.

[Flyingdog]

Thank you so much for you reply. I am using existing USD before the time of move to buy T-bill (while living in Canada). When the bill matures, I only get USD interest income. Since the currency never change and always stay in USD, there should not be any foreign exchange gain and lost. Shouldn't I be only tax on the interest income?

I understand that I have to re-source the interest using Form 1116 and treat it as Canada source. I do not completely understand the impact of the re-source on taxes since US tax on worldwide income. So if I resource the T-bill interest back to Canada, does it not count as worldwide income according to IRS? So I use the tax I pay to Canada and claim as a FTC on Form 1116?

My Canadian income is low and I ended up paying very little taxes on the interest income. My US income is higher due to different basis in other investment. I am getting no tax relief from Canada side (since no tax pay) but paying taxes on that T-bill interest income (since I have other capital gains income to kick my tax bracket up). So I pay tax on the T-bill interest income in US but not in Canada. And there is no where I can claim or benefit from taxes pay on the interest. Does this sound right?

[nelsona]

As with all FTC calculations, you are always limited to the least tax paid in either country.

[Flyingdog]

Thank you so much for your help.