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Discussion Starter · #1 ·
Hello Canadian Money Forums,

I want to confirm my understanding of how Capital Gains are calculated in various situations on US stocks for Canadians.

Thank you

1) Assume Buy and Sell was both done in $CAD.

*Suppose, I bought 1,000 shares at USD $1/Share and the CAD/USD exchange rate was $0.75 at time of purchase. Suppose at the time of sale the stock increased to USD $2/ share and the CAD/USD increased to $0.80.

CAD $ to buy the stock = $1,333.33
CAD $ received from selling = $2,500

Canadian Capital Gains = CAD $1,166.67 Correct?


2) Assume Buy and Sell was both done in $USD

*Suppose, same scenario as stated in example 1. Assume CAD/USD is $1 on Dec 31.

What are the Canadian Capital Gains in this situation? CAD $1,000 (Dec 31) or $1,250 (Time of Sale)?

Thank you
 

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#1 is the correct calculation, assuming the exchange rate used in the calculation is the date the transaction was settled (typically 2 days after you place the trade). Your trade confirmation slips from your broker will tell you the settlement dates for the initial investment and later sale. I'm sorry but I don't follow #2. The only dates that matter for the capital gain on the stock are the dates when you settled the trades.
 

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CRA requires that you use the CAD equivalent rate in effect on the settlement date at time of purchase, and then the CAD equivalent rate in effect on the settlement date at time of sale. As post #3 says, Bank of Canada has the historical exchange rates for any date going back a long time.

Example for buying and selling in USD (ignoring commissions for the moment)
  • Purchase stock at $1000USD and forex rate on date of settlement is 1.25. Actual purchase price is $1250 CAD
  • Sell stock at $1000USD and forex rate on date of settlement is 1.33. Actual sales price is $1333 CAD
  • Cap gain is $83
 

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Discussion Starter · #5 ·
Thank you for all the responses.

Example for buying and selling in USD (ignoring commissions for the moment)
  • Purchase stock at $1000USD and forex rate on date of settlement is 1.25. Actual purchase price is $1250 CAD
  • Sell stock at $1000USD and forex rate on date of settlement is 1.33. Actual sales price is $1333 CAD
  • Cap gain is $83
Thank you, this answers my Example 2 question.

My Stock Broker is BMO so I am assuming they will make all the Capital Gains calculations for me at the end of the year as usual including my US Stock transactions. However, I understand now how Capital Gains are calculated for US Stocks.

Thank you again.
 

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BMO IL will give you a realized gain/loss report with USD transactions converted to CAD but it is not official for income tax purposes. It could be correct but you would be wise to verify your own calculations (in CAD equivalent) before using them on your income tax. It is especially important if you journaled secururities from one side of the account (e.g. CAD) to the other side of the account (e.g. USD) because most brokerages really screw up Book Value conversions when that is done.

They will also give you a T5008 (for use in income tax) with USD transactions in USD only but do not give you CAD equivalent. You take the responsibility for the actual cap gains/losses calculation.
 

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Whenever I prepare to buy of sell a US stock in US funds, I check what BMO Investorline states as my cash positions before and after my transactions. That way, I know exactly the Canadian value BMO IL had deducted from or credited to my account.
 

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Whenever I prepare to buy of sell a US stock in US funds, I check what BMO Investorline states as my cash positions before and after my transactions. That way, I know exactly the Canadian value BMO IL had deducted from or credited to my account.
What does BMO IL base that rate on anyway? Unless it is actually the BoC exchange rate (I have never checked), it won't be exactly correct. When I do a buy/sell in USD, I go to the BoC website to get the exact rate for the day and record it. That said, if BMO IL uses the BoC rate, I have learned something today that will save me a few steps in the future.
 

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What does BMO IL base that rate on anyway? Unless it is actually the BoC exchange rate (I have never checked), it won't be exactly correct. When I do a buy/sell in USD, I go to the BoC website to get the exact rate for the day and record it. That said, if BMO IL uses the BoC rate, I have learned something today that will save me a few steps in the future.
The amount of money BMO IL took from you is the amount of money you spent to invest.
 

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If you have paid too much in commission to change CAD to USD or vice versa to buy (or sell) an asset, that is really your problem, not that of CRA. The BoC rate is the right one to use TaxTips.ca - Reporting foreign amounts on your Canadian income tax return. That said, CRA is not likely to come knocking with that discrepancy.

As I understand it, forex conversion commissions are only tax deductible in business operations or if one is in the business of being a currency trader. FWIW, I don't know of anyone who would actually convert funds using brokerage commission rates of circa 1% or more unless it is a small amount not warranting a Norbert's Gambit.
 

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If you have paid too much in commission to change CAD to USD or vice versa to buy (or sell) an asset, that is really your problem, not that of CRA. The BoC rate is the right one to use TaxTips.ca - Reporting foreign amounts on your Canadian income tax return. That said, CRA is not likely to come knocking with that discrepancy.
I disagree with this, based on this sentence from your Taxtips link:
If any income or expense that you have received or paid was converted to Canadian dollars as part of the transaction, then the Canadian dollar amount that you actually received or paid would be reported as your income or expense.

I believe using the BOC rate only applies when you are trading stocks in a USD-denominated account using USD and you never actually get CAD as part of it.
 

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The first half of the paragraph is for Schedule 3 capital items. It is very clear how one handles capital purchases and sales
The foreign exchange rate used to convert the foreign currency transaction into Canadian dollars is either

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the rate in effect on the date of the transaction, or
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the average annual exchange rate for the taxation year

as quoted by the Bank of Canada on the particular day or on the closest preceding day for which a spot rate is quoted, as per the definition of "relevant spot rate" in s. 261(1) of the Income Tax Act.

When assets, including investments, are purchased or sold, the exchange rate in effect on the date of the transaction should be used. Dividends received throughout the year can be converted at either the transaction date rate or the average annual exchange rate for the taxation year, but the method used should be consistent from year to year.
The second part is for income and expense items, such as investment income dividends and distributions converted to CAD as received, management fees, etc.

If any income or expense that you have received or paid was converted to Canadian dollars as part of the transaction, then the Canadian dollar amount that you actually received or paid would be reported as your income or expense. For example:



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If you have paid tax-deductible expenses by using your credit card, which converts the amounts into Canadian dollars, you would use the Canadian $ amount that you actually paid.
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If your foreign dividends are received in a Canadian $ account, so that they are converted automatically, the the amount you would report as a dividend is the Canadian $ amount that you actually received.
I am not going to continue to argue this point because I have no skin in this game beyond being a taxpayer, but investors need to spend a little time truly understanding the differences. For example, the average annual forex rate only applies to recurring income/expense. Precise BoC daily forex rates apply to capital purchases and sales.
 

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I believe it is acceptable to use the actual exchange rate obtained in the transactions to calculate gains. It is also acceptable to use the yearly average exchange rate. The CRA does insist that the method is used consistently though, so you can't game things by picking the method for each transaction.

Also, if you tend to hold blocks of $US, then the buy/sell of anything using $US is a capital event in the asset of $US, in addition to the stock. This means that your $US holdings have and ACB in their own right and you have to calculate currency gains or losses on that. Gains below $200 do not have to be reported, but you have to track it to know where you stand.

Personally, I use the spot rate as shown on Yahoo, generally in the hour that the order executes -- which is a little naughty -- but I can't be bothered to go back and get the rate two days later on the settle date.
 

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I believe it is acceptable to use the actual exchange rate obtained in the transactions to calculate gains. It is also acceptable to use the yearly average exchange rate. The CRA does insist that the method is used consistently though, so you can't game things by picking the method for each transaction.
It is acceptable to use the yearly average exchange rate for income transactions only. Not capital transactions. So dividends, interest payments can use the average. However, capital transactions should use the rate in effect on the settlement date of the transaction.
 

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It is acceptable to use the yearly average exchange rate for income transactions only. Not capital transactions. So dividends, interest payments can use the average. However, capital transactions should use the rate in effect on the settlement date of the transaction.
I don't know why some (not many I suspect) people continue to think they can use annual average on capital transactions. The CRA Capital Gains guide is clear on that matter despite this misinformation continuing to persist by some investors. Every capital gains guide issued by CRA, TaxTips, and Advisory channels is consistent on this. Investors may well be confusing capital trading vs business (income) trading where gains and losses are income/expense rather than capital transactions.
 

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So dividends, interest payments can use the average. However, capital transactions should use the rate in effect on the settlement date of the transaction.
Could make drips or ROC distributions in foreign currency a little tedious to deal with.
 

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The first half of the paragraph is for Schedule 3 capital items. It is very clear how one handles capital purchases and sales

The second part is for income and expense items, such as investment income dividends and distributions converted to CAD as received, management fees, etc.



I am not going to continue to argue this point because I have no skin in this game beyond being a taxpayer, but investors need to spend a little time truly understanding the differences. For example, the average annual forex rate only applies to recurring income/expense. Precise BoC daily forex rates apply to capital purchases and sales.
I see, I missed the nuance there. This is why I only deal in things that are listed in Canada. :)
 
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