US Dollar Capital Gains Tax

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soldToSoon
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US Dollar Capital Gains Tax

Post by soldToSoon »

Here's a situation. I've a business that received regular income in US Dollars for many years.
This revenue was shown at the appropriate exchange rate-converted at the exchange rate on month end-and Income statements generated accordingly.
The US Dollars were never converted to Canadian dollars until recently when the loonie began its descent, circa 2014 onwards.
How do I account for this sale of US Dollars?
These US Dollars were acquired at different times at different rate points.
I'm leaning towards working out an ACB number, but how should that number be worked out?
That is, if I kept on getting more USDs at newer exchange rates even when I was selling some of the 'older' USDs in my account, how would ACB be worked out?
pmj
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Re: US Dollar Capital Gains Tax

Post by pmj »

Did you/the business ever spend any of those US$? Or did they just sit in a separate US$ account until you started to convert them in 2014?
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gobsmack
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Re: US Dollar Capital Gains Tax

Post by gobsmack »

One gotcha: I believe you can move USD to USD HISA back and forth without triggering a disposition. But if you have used a USD Money Market fund instead of a HISA, it would have triggered a capital gain/loss.
soldToSoon
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Re: US Dollar Capital Gains Tax

Post by soldToSoon »

Most of the US Dollars(say more than 95%) was sitting in a separate account. Occasionally a GIC would be purchased for some of the amounts in the account. No other investments (bonds, treasuries etc.) were bought.
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kcowan
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Re: US Dollar Capital Gains Tax

Post by kcowan »

soldToSoon wrote:This revenue was shown at the appropriate exchange rate-converted at the exchange rate on month end-and Income statements generated accordingly.
This has established your ACB for USD. Now you just claim actual gains/losses from that ACB when you do the exchange.
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soldToSoon
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Re: US Dollar Capital Gains Tax

Post by soldToSoon »

Thanks. The issue is that ACB is a moving value depending on when the transaction(sale of USD) occurred. So do I use the ACB on the date of the transaction? Or the ACB at the end of the business year?
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Re: US Dollar Capital Gains Tax

Post by Spudd »

The ACB is a static value, that is the original value in CAD of the USD received. You add up all your received USD over time and see how much CAD you reported as income, that total is the ACB.

Then when you sell, you'll use the value of CAD received on the sell date and the fraction of the total to determine the capital gains.

e.g.

paid 10000 usd over time, totalled out to 15000 cad

sold 1000 usd last week, got 2000 cad for it

ACB = 15000 CAD for the total USD you have

ACB for the transaction is 1500 CAD (1/10 of the original amount) and you sold it for 2000 so you have a $500 capital gain.
soldToSoon
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Re: US Dollar Capital Gains Tax

Post by soldToSoon »

Thanks for the response.
ACB can't be static in my case as I keep on receiving new USDs and sell USDs in the same year multiple times.
e.g in 2016, this is a subset of what I did:

Sell USD $20,000 @1.41
Receive USD $16,500 @1.388
Sell USD $20,000 @1.37
Sell USD $20,000 @1.37
Receive USD $18,500 @1.27
Sell USD $20,000 @1.36

The only way we could make ACB static is by fixing it at the time of the sell transaction. But that would be more of 'as of date' type of dating.
Then as we buy and sell more, the ACB value will change. And a new value generated.
Numerous such transactions occurred over the years, with 2015 and 2016 having lots more solds than the implicit 'buys'.

I'm very new to the investing world, so your continued responses are appreciated.
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AltaRed
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Re: US Dollar Capital Gains Tax

Post by AltaRed »

Technically, when you buy and sell as an investor, you use the forex rate on the date of settlement of the transaction, even for multiple* buys/sells. CRA permits the average annual rate as published by BOC to be used for periodic cash flows, e.g. income/expenses.

* OTOH, many transactions may be seen as 'business income' for a currency trader, in which case I believe, the gains/losses are treated as income/expense, not cap gains/losses. It may well be this is your situation. Caution: I am not even a neophyte on ITA treatment on 'business' transactions.
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Spudd
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Re: US Dollar Capital Gains Tax

Post by Spudd »

I didn't realize you were still receiving it, in that case, yes, the ACB will not be static. You need to add to the ACB each time.

So with your example if you start with zero money (I eliminated the first sell because you can't sell something you don't have and changed the first receive value so you wouldn't run out of money):

Receive USD $60,000 @1.388 -- ACB = 83,280 CAD

Sell USD $20,000 @1.37 (27,400 CAD) -- This is 33% of your initial stake. So your new ACB of your USD is 67% of the original ACB, i.e.55,520. You take a capital loss on this transaction because you sold it for less than you bought it for. And you have 40k USD left over with an ACB of 55,520.

Sell USD $20,000 @1.37 (27,400 CAD) -- You are now selling 50% of your remaining USD. So your remaining 20k USD has a new ACB of $27,760. Again you take a capital loss because you sold it for less than the ACB (ACB of the transaction was $27,760 but you only received $27,400).

Receive USD $18,500 @1.27 -- If you didn't have the old USD around, the ACB for this alone would be $23,495. But you need to add it to your old USD, you now have $38,500 USD with an ACB of $51,255 ($27,760 for the old USD plus $23,495 for the new USD).

Sell USD $20,000 @1.36 -- You're selling 51.2% of your USD (20,000/38,500). The ACB for this transaction is $26,626 (51.2% times 51,255). The ACB for your remaining USD is $24,629 (51,255 minus 26,626). You get $27,200 CAD for this transaction which means you have a capital gain of $574 since the ACB was only $26,626.

Hope this helped...
soldToSoon
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Re: US Dollar Capital Gains Tax

Post by soldToSoon »

Yes, that's what I thought. The ACB keeps on changing. Calculating it would require a little bit of work though.

Thanks!
gobsmack
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Re: US Dollar Capital Gains Tax

Post by gobsmack »

This article may help you. This website also offers a tool to calculated the ACB.
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Re: US Dollar Capital Gains Tax

Post by Katou »

We had $35,000 in Cnd $ now worth $50,000 in US$ in a BMO-Il Corp.Invst Acct.

Will there be any taxes when we convert the US$50k to Cnd $
Because when we filed income taxes for this Holdco we reported the amount of US$ in acct.

Thks
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