capital gains on US currency

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river
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capital gains on US currency

Post by river »

I understand that I buy US currency and USD/CAD rises and I convert it back at a profit, then I must pay tax on the capital gains.

However, if I've been paid in USD, and USD/CAD rises over a year and I then convert some to CAD, do I have to record what the value was when I received it so I can report capital gains on it in the same way?
Also, is it the same for bitcoin?

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Re: capital gains on US currency

Post by SQRT »

Are you a Canadian tax payer? One way FX conversions are not generally a taxable event. By Not sure about Bitcoin but I suspect the same rules apply.
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Re: capital gains on US currency

Post by river »

SQRT wrote:Are you a Canadian tax payer? One way FX conversions are not generally a taxable event. By Not sure about Bitcoin but I suspect the same rules apply.
Thank you very much for your reply. Yes, I am a canadian tax payer.
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Re: capital gains on US currency

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SQRT wrote: One way FX conversions are not generally a taxable event.
I thought this had been debunked. There is no concept of a 'one-way FX conversion' in Canadian taxes that I'm aware of...
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Re: capital gains on US currency

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DavidR wrote:
SQRT wrote: One way FX conversions are not generally a taxable event.
I thought this had been debunked. There is no concept of a 'one-way FX conversion' in Canadian taxes that I'm aware of...
I do not pay income taxes when I buy US dollars to spend on my US residence? If I instead reconvert some of the US dollars back to CDN dollars I might have a taxable cap gain or loss. It takes 2 sides to create a gain or loss. Much like buying any security. The purchase alone does not create a gain. One must sell to create a taxable event. There was some debate about what might happen if one changes his tax residence. Not sure where that ended up.
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Re: capital gains on US currency

Post by pmj »

And in the context of the OP's Q, step one was receiving US$ income, which had a certain C$ value on the date of receipt, and step two was converting those US$ to C$ at some later date at (probably) a different exchange rate - thus the taxable gain or loss.
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Re: capital gains on US currency

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SQRT wrote:
DavidR wrote:
SQRT wrote: One way FX conversions are not generally a taxable event.
I thought this had been debunked. There is no concept of a 'one-way FX conversion' in Canadian taxes that I'm aware of...
I do not pay income taxes when I buy US dollars to spend on my US residence? If I instead reconvert some of the US dollars back to CDN dollars I might have a taxable cap gain or loss. It takes 2 sides to create a gain or loss. Much like buying any security. The purchase alone does not create a gain. One must sell to create a taxable event. There was some debate about what might happen if one changes his tax residence. Not sure where that ended up.
It takes a Disposition to create a gain or loss. If you are a Canadian resident, then the US dollars that you sold have a Cost Base for Canadian tax purposes, so there is potentially a gain or loss on the disposition. I am sure that there are not very many tax payers who compute and report the gain/loss every time they spend some US dollars, but aside from the $200 exemption you are technically supposed to do so.
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Re: capital gains on US currency

Post by Bylo Selhi »

A related scenario. Suppose I buy a relatively large amount of US$ and deposit them in a US$ account. If that account pays interest then yes, I have to report that as income in CA$ and pay tax on it. I get that and I'm OK with that.

But now further suppose that over the ensuing years I spend money out of that account in US$, e.g. using a US$ credit card to pay for stuff purchased online from US sellers, using US$ cash withdrawn from the account to pay travel expenses while in the US, etc. In all cases the transactions occur outside Canada and are in US$.

Must I track the CA$/US$ FX rate every time I make a transaction out of that account, then report gains/losses on my tax return?

Is there some dollar amount threshold or other simplification? It seems onerous to have to track every minor transaction, say under $100, calculating gain/loss, updating ACB, etc. for what could be dozens or more transactions every year. Surely CRA must have some rules that govern this.
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Re: capital gains on US currency

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I would imagine the $200 exemption would take care of at least some of it....and if you are like probably 90% of taxpayers, forget about the whole matter entirely. I've never considered it when I've made USD transactions with my USD credit card out of my USD account.
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Re: capital gains on US currency

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Re: capital gains on US currency

Post by IdOp »

From a logical standpoint though, ISTM one would have to go through the calculations first to even know that you had a gain or loss less than $200. Either that or do some kind of rigorous estimate showing it was less than that. And also good luck with "superficial losses". :twisted:
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Re: capital gains on US currency

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Bylo Selhi wrote:Must I track the CA$/US$ FX rate every time I make a transaction out of that account, then report gains/losses on my tax return?
Yes - subject to the $200 exemptions.
... updating ACB, etc
ACB only changes if you add more US$ along the way.
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Re: capital gains on US currency

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pmj wrote:
Bylo Selhi wrote:... updating ACB, etc
ACB only changes if you add more US$ along the way.
As well as when one spends the US$ cash.
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Re: capital gains on US currency

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adrian2 wrote:
pmj wrote:
Bylo Selhi wrote:... updating ACB, etc
ACB only changes if you add more US$ along the way.
As well as when one spends the US$ cash.
???
If I buy a stack of US$ at C$1.20, their cost basis is C$1.20. If I sell (spend) some of them at whatever the rate is on the sell date, surely the remaining ones still have a cost basis of C$1.20?
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Re: capital gains on US currency

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pmj wrote:
adrian2 wrote:
pmj wrote: ACB only changes if you add more US$ along the way.
As well as when one spends the US$ cash.
???
If I buy a stack of US$ at C$1.20, their cost basis is C$1.20. If I sell (spend) some of them at whatever the rate is on the sell date, surely the remaining ones still have a cost basis of C$1.20?
You're talking about the ACB per share/unit.
I'm talking about the aggregate ACB.
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Re: capital gains on US currency

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This could be a problem for those canadian residents who are factual residents, working overseas, or investing in US stocks for a few years. $200 exemption is a trifle. The US & UK does not charge capital gain/loss on one way conversions of earned or stored foreign currency converted to US/GBP but Canada does see this as a new frontier for income tax :)

e.g http://kpmg.co.uk/email/02Feb12/266151/ ... 03_Acc.pdf
"
E.g. From 6 April 2012, withdrawals from
foreign currency bank accounts will no
longer give rise to capital gains and/or
allowable capital losses, regardless of
whether the funds are exchanged into
another currency or not. This removes
the significant administrative burden
of tracking every movement on the
account and calculating the exchange
gains and losses realised. "
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Re: capital gains on US currency

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AltaRed wrote:I would imagine the $200 exemption would take care of at least some of it....and if you are like probably 90% of taxpayers, forget about the whole matter entirely. I've never considered it when I've made USD transactions with my USD credit card out of my USD account.
Now that I think more about it, I am not convinced it matters when and what you draw from a USD account and purchase typical USD consumer goods and services. With maybe the exception of high value art, collector cars and similar items that could be classified by CRA as capital property, why would anyone, including CRA, care?
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Re: capital gains on US currency

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adrian2 wrote:
pmj wrote:
adrian2 wrote: As well as when one spends the US$ cash.
???
If I buy a stack of US$ at C$1.20, their cost basis is C$1.20. If I sell (spend) some of them at whatever the rate is on the sell date, surely the remaining ones still have a cost basis of C$1.20?
You're talking about the ACB per share/unit.
I'm talking about the aggregate ACB.
Which if there are no acquisitions, would give the same result. And for clarity I referred to CB, not ACB.
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Re: capital gains on US currency

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AltaRed wrote:Now that I think more about it, I am not convinced it matters when and what you draw from a USD account and purchase typical USD consumer goods and services. With maybe the exception of high value art, collector cars and similar items that could be classified by CRA as capital property, why would anyone, including CRA, care?
If you declare a gain of $200 on a stock transaction, or a sale of gold, why should you not declare a $200 gain on a currency transaction? Currency is specifically included in CRA's definition.
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Re: capital gains on US currency

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DavidR wrote:
SQRT wrote:
DavidR wrote: I thought this had been debunked. There is no concept of a 'one-way FX conversion' in Canadian taxes that I'm aware of...
I do not pay income taxes when I buy US dollars to spend on my US residence? If I instead reconvert some of the US dollars back to CDN dollars I might have a taxable cap gain or loss. It takes 2 sides to create a gain or loss. Much like buying any security. The purchase alone does not create a gain. One must sell to create a taxable event. There was some debate about what might happen if one changes his tax residence. Not sure where that ended up.
It takes a Disposition to create a gain or loss. If you are a Canadian resident, then the US dollars that you sold have a Cost Base for Canadian tax purposes, so there is potentially a gain or loss on the disposition. I am sure that there are not very many tax payers who compute and report the gain/loss every time they spend some US dollars, but aside from the $200 exemption you are technically supposed to do so.
I've never heard of anyone doing this, nor ever been advised to do so. When I take my biking trip to Italy next month, I will buy a few thousand Euros. I will then spend them over there as I bike along. Have you ever heard of anyone calculating a gain or loss on each purchase? I haven't and quite frankly the proposition seems absurd.
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Re: capital gains on US currency

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If it's over $200, I think the government would be ok if you took the exchange rate when you left and then used the Bank of Canada website to use the average over the period of your trip or year-end whichever comes first. It takes a few seconds to sum that up. Why is the exemption so low? Sounds like the intent is to exclude short trips. But in today's age of currency wars, that $200 is not enough or accounts for very short trips and very low spending threshold.
(There is also another solution - you could use a cad$ credit card with no foreign exchange fees like amazon.ca, they will convert each transaction to CAD for each purchase or cash advance and so basically take care of the accounting for you - but you won't be able to make an astute trade to profit from larger sums - and I think that is the intent of the law - to tax people from opportunistically producing a gain from when the Canadian dollar collapses versus other currencies. However, they must also allow losses when the currency strengthens and you have less purchasing power from your foreign currency).
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Re: capital gains on US currency

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pmj wrote:If you declare a gain of $200 on a stock transaction, or a sale of gold, why should you not declare a $200 gain on a currency transaction? Currency is specifically included in CRA's definition.
Gain relative to what? To use Bylo's example, I've either obtained the USD from the sale of a USD security or via income from bank interest, stock dividends, etc. Income tax is paid to Canada on a CAD equivalent basis. So spin forward a year. I now spend that USD somewhere on goods and services, e.g. an out-of-country vacation or a boat or electronic goods. There is really no CAD reference point on what that USD will buy in the USA, or Italy, or South Africa or if I cannot buy that item with CAD directly.

Yes, I do know that when my credit card bill is paid, one can argue that is when I have converted currency. The concept though seems absurd in the extreme.
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Re: capital gains on US currency

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I don't have enough hours in my day to take a position on whether or not any particular rule is absurd :shock:. This is, presumably, a discussion about the rules.
If you buy a stock, conveniently called DSU, whose cost was US$1 = C$1 at the time of purchase, and that stock doesn't appreciate, it only holds its value at US$1, so you decide sell it, but meantime the C$ has dropped / US$ has appreciated to say C$1.20 at the time of sale - you have a capital gain in C$. Why should the tax payable be any different if you were holding a stash of US$ rather than a stash of shares of the stock DSU?
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Re: capital gains on US currency

Post by Bylo Selhi »

AltaRed wrote:To use Bylo's example, I've either obtained the USD from the sale of a USD security or via income from bank interest, stock dividends, etc. Income tax is paid to Canada on a CAD equivalent basis. So spin forward a year. I now spend that USD somewhere on goods and services, e.g. an out-of-country vacation or a boat or electronic goods. There is really no CAD reference point on what that USD will buy in the USA, or Italy, or South Africa or if I cannot buy that item with CAD directly.
What if e.g.
• you buy US$10k today for CA$12500
• spend US$5k in May on a trip to the US
• leave the rest in a US$ account
• a year from now, when the CA$ has dropped by 10% you spend the other US$5k on another trip stateside

A year from now your second US$5k is worth CA$6875. But it cost you only $6250 a year ago. You have a CA$625 capital gain on your US$5k holding. Do you declare that?
Yes, I do know that when my credit card bill is paid, one can argue that is when I have converted currency. The concept though seems absurd in the extreme.
If your card is in CA$ then the CC does the conversion. If you have a US$ card then there's no explicit conversion but there is a deemed disposition of the US$ that you used to pay off the card. In my above example a year later that would be a CA$625 capital gain.

From what I've read, technically you should track and declare this. But from a practical standpoint CRA is unlikely to challenge you if the amounts are relatively small. CRA's official threshold is $200/year. But that seems awfully low. So I'm asking what is considered the threshold in practice.

(OTOH technically CRA expects you to declare all interest income even if it's below the $50 threshold for T5 slips. Do people really declare the paltry 1¢ here, 2¢ there that they get from time to time on banks' 0.01% US$ savings account rates? [Yes that's what TD/CT pays on US$.]
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Re: capital gains on US currency

Post by Pitboard »

Buy your holiday money at $1.27 convert back on your return at $1.23. Claim the loss :lol:
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