Calculating Adjusted Cost Base for Foreign Currency Cash

The Canada Revenue Agency requires taxpayers to report capital gains on foreign currency when the transactions are on capital account.  Adjusted cost base must be calculated in Canadian dollars in a similar fashion to securities.  When you convert Canadian dollars into a foreign currency, the adjusted cost base is established in Canadian dollars.  When the funds are later converted back into Canadian dollars, a capital gain or loss will be realized if the exchange rate has fluctuated.

A capital gain or loss is also realized  when the funds are used to purchase securities that trade in the foreign currency, or when the funds are used to pay expenses or make a purchase.  In these cases a deemed disposition of the foreign funds is considered to have occurred, even though they may not have been converted into Canadian dollars.

Special attention must be made when holding foreign currency in a foreign currency bank account or brokerage account.  A conversion of Canadian dollars into a foreign currency will increase the ACB of the foreign funds by the value in Canadian dollars.  Similarly, if you receive foreign funds directly (for example: income, dividends, interest), the value in Canadian dollars is added to the ACB of the foreign funds.  This will affect the amount of the capital gain or loss when the foreign funds are eventually converted to Canadian dollars or spent (although the income, dividends, and interest will likely be taxable immediately).

If you hold a foreign currency in multiple accounts, do not calculate ACB separately for each account.  ACB must be jointly since the same currency is considered an identical security (see Tracking Adjusted Cost Base with Multiple Brokerage Accounts).

The CRA provides a $200 exclusion on foreign exchange gains.  If the gain on foreign currency is less than $200 for the year, you do not need to report it.  Also, any loss less than $200 cannot be claimed.  This was put in place so that taxpayers are not overburdened by the complexity of tracking ACB for foreign currency used casually such as for traveling.  But when gains exceed $200 the calculations can become quite cumbersome.

For example, suppose you convert CAD$100,000 into U.S. dollars with an exchange rate of CAD$1=USD$0.9192.  The U.S. cash balance becomes:

  CAD$100,000 x USD$0.9192/CAD$
= USD$91,920

Since ACB is tracked in Canadian dollars, the initial ACB is simply CAD$100,000.

Next, suppose the funds earn interest of USD$80 when the exchange rate is CAD$1=USD$0.9304.  The interest would be immediately taxable in the current tax year.  The ACB of the U.S. dollars increases by USD$80 converted into Canadian dollars.  The ACB increases to:

  CAD$100,000 + (USD$80.00 / USD$0.9304/CAD$)
= CAD$100,000 + CAD$85.98
= CAD$100,085.98

The account balance is now USD$92,000.

Then, suppose you spend USD$1,200 on a vacation funded directly from your U.S. dollar account, when the exchange rate is CAD$1=USD$0.9023.  This results in a deemed disposition of the U.S. dollars even though no conversion to Canadian dollars took place.  The proceeds in Canadian dollars are:

  USD$1,200 / (USD$0.9023/CAD$)
= CAD$1,329.93

A capital gain has occurred and must be reported on your tax return.  The capital gain is equal to:

  CAD$1,329.93 — (CAD$100,085.98 x (USD$1,200.00 / USD$92,000.00))
= CAD$1,329.93 — CAD$1,305.47
= CAD$24.46

The new ACB is:

  CAD$100,085.98 — (CAD$100,085.98 x (USD$1,200.00 / USD$92,000.00))
= CAD$100,085.98 — CAD$1,305.47
= CAD$98,780.51

and the U.S. cash balance is USD$90,800.

Next, you convert USD$1,000 into Euros when the exchange rates are CAD$1=USD$0.9409 and USD$1=EUR€0.7234 (and therefore CAD$1=EUR€0.6806).  The U.S. cash balance is now USD$89,800 (USD$90,800 — USD$1,000).  The USD$1,000 is deemed to have been sold so this results in the following capital gain:

  (USD$1,000.00 / (USD$0.9409 / CAD$)) — (CAD$98,780.51 x (USD$1,000.00 / USD$90,800.00))
= CAD$1,062.81 — CAD$1,087.89
= —CAD$25.08

The capital loss of CAD$25.08 can be applied to offset capital gains.  The new ACB for the U.S. dollars becomes:

  CAD$98,780.51 — (CAD$98,780.51 x (USD$1,000.00 / USD$90,800.00))
= CAD$98,780.51 — CAD$1,087.89
= CAD$97,692.62

Assuming that you don’t spend the Euros immediately, you must now track the ACB for this new holding.  The initial Euro cash balance is:

  USD$1,000.00 x (EUR€0.7234/USD$)
= EUR€723.40

The initial ACB for the Euros becomes:

  EUR€723.40 / (EUR€0.6806/CAD$)
= CAD$1,062.89

The ACB for Euros must now be tracked separately.

Finally, you purchase 100 shares of YHOO for USD$80.00 per share with a commission of USD$9.99 and an exchange rate of CAD$1=USD$0.8941, funded directly from your U.S. dollar account (see Calculating Adjusted Cost Base when Purchasing Foreign Currency Securities).  This results in a deemed disposition of U.S. dollars in the amount of:

  (100 shares x USD$80.00/share) + USD$9.99
= USD$8,009.99

This results in the following capital gain:

  (USD$8,009.99 / USD$0.8941/CAD$) — (CAD$97,692.62 x (USD$8,009.99 / USD$89,800.00))
= CAD$8,958.72 — CAD$8,714.00
= CAD$244.72

The ACB of the U.S. dollar is now:

  CAD$97,692.62 — (CAD$97,692.62 x (USD$8,009.99 / USD$89,800.00))
= CAD$97,692.62 — CAD$8,714.00
= CAD$88,978.62

And the U.S. cash balance becomes:

  USD$89,800.00 — USD$8,009.99
= USD$81,790.01

Finally, the ACB of YHOO must also be calculated in Canadian dollars:

  USD$8,009.99 / (USD$0.8941/CAD$)
= CAD$8,958.72

AdjustedCostBase.ca can be used for calculating ACB and capital gains on foreign currency balances.  To do so, create a new security for each foreign currency as follows:

New Security - U.S. Dollars

Each transaction can be inputted as a buy or sell transaction for U.S. dollars.  Here is the first transaction from the example above:

Transaction - Purchase of U.S. Dollars

This is a buy transaction because U.S. dollars are being purchased.  The price can be entered as $1.00 indicating that each unit (or “share”) is equivalent to USD$1.00.  For all transactions on U.S. dollars, use $1.00 as the price, since one unit of currency will always be worth USD$1.00.  The “Price in Foreign Currency” checkbox is checked, and the exchange rate is entered.  This results in the following transaction:

Initial Transaction U.S. Dollars

Note that the ACB is CAD$100,000 as expected.  All values in the transaction list are shown in Canadian dollars.  The remaining transactions can be entered in a similar fashion.  For the purchase of Euros two transactions must be inputted: a sell transaction for U.S. dollars and a buy transaction for Euros.  Similarly, for the purchase of YHOO you must enter two transactions: a sell transaction for U.S. dollars and a buy transaction for YHOO.

Below are the list of transactions for the entire example:

List of U.S. Dollar Transactions

List of Euro Transactions

List of YHOO Transactions

197 thoughts on “Calculating Adjusted Cost Base for Foreign Currency Cash

  1. AK

    Excellent write up! Finally an article that clearly explains detailed FX calculation.

    Particularly, once you already have foreign currency and there is an appreciation in the FX rate before you purchase a foreign stock, there is a deemed disposition of the foreign currency when you purchase the stock.

  2. RG

    In my taxable US dollar account with a Canadian brokerage, I often move cash in and out of a high interest savings account at a bank such as TDB8152 which trades at a price of $10.

    Am I correct that this is still considered US cash (the same capital property) and that simply moving the money between the brokerage and the bank fund does not constitute a capital transaction?

    If so, the calculation and reporting of ACB gets weird because sometimes the cash has a price of $1 and sometimes $10. What’s the best way to report these US cash transactions so that CRA won’t see a conflict between my tax filing and the information the brokerage submits to them?

  3. AdjustedCostBase.ca

    RG,

    I’m not completely sure about this situation so it may be best to consult the CRA or a tax professional.

    However, I can see reasonable arguments for either case when redeeming units of a U.S. dollar savings mutual fund such as TDB8152 and keeping the proceeds in U.S. dollars. On the one hand, this mutual fund behaves just like a U.S. dollar savings account at a bank. When transferring U.S. cash from one savings account to another without any currency conversion, no deemed disposition would occur. On the other hand, TDB8152 is technically a mutual fund, so an argument can be made that selling units is considered a disposition. When you sell an index fund and purchase another index fund tracking the same index, a deemed disposition has occurred, even though the underlying holdings remain the same or similar. Similarly, if you sell a fund that contains a combination of cash and other securities, you would not be eligible to avoid capital gains on the cash portion.

    If the amount of potential capital gains is relatively small, I would suggest tracking the ACB of TDB8152 separately to avoid any trouble. This is especially true if you expect to deploy the U.S. dollars shortly after selling. Just be careful about capital losses – in this case the superficial loss rule would likely apply.

    If you wish to track ACB for cash and TDB8152 together, I would suggest denominating everything in units of one U.S. dollar. For transactions involving TDB8152, you can multiply the number of units by 10.

  4. RG

    Thanks, I appreciate your thoughts on this. As you suggested, I did some further checking. I found the follow statements on the TD Asset Management web site concerning the TDB8150 product series.

    Product name: TD Investment Savings Account
    Investment Type: Deposit of a Canadian bank
    Additional Information: The TD Investment Savings Account is a deposit and not a mutual fund. It is not issued by prospectus. Transactions in this product may appear on a client broker dealer statement under the industry standard “Mutual Fund” heading.

    I contacted CRA with this information and spoke to an agent who said he could answer questions about reporting gains on foreign currency transactions. After disappearing for a few minutes of research and checking with some colleagues, he responded that movement of cash to/from the savings account would not be a reportable transaction (unless it happened to coincide with another transaction, such as the purchase of a security, that was reportable). I posed a scenario where I held US cash for 45 days between selling one security and buying another, and moved the money into the TD savings product for 30 of the 45 days. He confirmed that I should report the gain/loss once for the 45-day period.

    So, this means I won’t need to track buy/sell transactions on TDB8152 since the actual purchase/sale of USD will be recorded at other times. However, when I record interest payments from TDB8152 as US currency purchases, I plan to use the method you proposed by using units of $1 instead of $10.

  5. Ana

    Hi,
    Just want to clarify for myself. Couple of times I received US$ as a gift from my parents (they live in another country). One time i did deposit this amount directly at the branch into my US$ account and other time i did transfer from my account in foreign country into my US$ account at Canadian bank. Both transactions were made at the time when Can$ vs. US$ was around a par. So if i decide to go on vacation and withdrew lets say US$ 5000 at current rate 1Can = 0.80US, will i have to declare capital gain? I never executed conversion and intending to spend those US$ funds on my vacations, purchasing online paying directly in US$ etc.
    Thanks in advance,
    Regards,
    Ana

  6. Pingback: Taxable Consequences of Norbert’s Gambit | Canadian Couch Potato

  7. bill

    Suppose you only have US dollars from the start and buy a US stock. Then later you sell it and the exchange rate to the Canadian dollar changes alot but you don’t convert the US dollars to Canadian. Then do you end up paying capital gains tax on the foreign exchange even though you didn’t exchange any currency? This could be quite expensive or do you just report the capital gain due to the stock going up and remove the amount of the foreign exchange?

  8. bill

    So even if you do not convert US dollars to Canadian after selling a US stock bought in US dollars, and the Canadian dollar depreciates significantly from your purchase date, you will have to pay capital gains tax on a “phantom” gain due to this currency exchange even if you leave your profits in US dollars?

  9. AdjustedCostBase.ca

    Bill,

    ACB should always be tracked in Canadian dollars, and foreign currency is treated similarly to any other investment such as stocks. When you purchase US stocks with US cash, a deemed disposition of the US cash occurs which results in a capital gain or loss. When you later sell the stocks, your gain or loss is calculated based on the value of the proceeds in Canadian dollars, even if the proceeds are not converted back into Canadian dollars (and in this case it would be as though you simultaneously purchased US cash, which would add to your ACB of US cash, even though no foreign currency conversion has taken place).

    In other words, when you buy US stocks with US cash, it’s treated as if you’ve converted your US cash to Canadian and then purchased the US stocks with Canadian cash. And when you sell US stocks and receive US cash, it’s treated as if you’ve received Canadian cash and instantaneously converted it into US cash.

  10. Cloud

    Hi,
    What if I borrow USD to purchase USD stocks? I am wondering if I need to keep track of the ACB of the negative USD balance and if it’ll trigger gain or loss by borrow more and repaying the USD.

    Thanks

  11. Ryan

    Superb write up.

    How about if I stock up US$ by converting from C$ in year 1 and use the US$ fund to buy a US stock. In year 2, the US$ & stock price increased significantly. I sold the US stock, realizing stock price gain but keeping the proceeds (in US$ cash) on account (non-registered) for buying US stock or in anticipation of forex gain (by converting back to C$) in future years? Can I consider the disposition of not yet happened and CRA doesn’t require me to file tax on the unrealized forex gain? How would the tax treatment when I buy a US stock with the proceeds says in year 3?

    Thanks!

  12. AdjustedCostBase.ca

    Ryan,

    You’ll be required to report a capital gain by calculating the proceeds in Canadian dollars, which means that the capital gain will be based on both the appreciation of the stock and the US dollar. Let’s say that you engage in the following transactions as you’ve described:

    1) Buy US dollars (convert from Canadian dollars)
    2) Buy US shares with US dollars
    3) Sell US shares and receive proceeds in US dollars

    These transactions would be equivalent to the following for tax purposes:

    1) Buy US dollars (convert from Canadian dollars)
    2a) Sell US dollars (convert to Canadian dollars)
    2b) Buy US shares (using Canadian dollars from 2a)
    3a) Sell US shares and receive proceeds in Canadian dollars
    3b) Buy US dollars (using Canadian dollars from 3a)

    Even though the explicit currency conversions in 2a and 3a may not have actually occurred, this is how it works for tax purposes. A capital gain or loss will apply for 2a and 3a.

  13. Ryan

    Thanks!! Should the BOC exchange rate at noon on trade date has to to be used? My brokerage has a big spread between buy & sell & It will be fair to use its rate, not the BOC one. Do yo think if it is acceptable to CRA?

    A further question about the disposition of the proceeds (US$ cash) that didn’t actually happened in year 2 but capital gains (forex) tax was reported and paid. When the disposition of the proceeds actually happened (spent it) in year 4 in the future & the exchange rate increased further above the one on the trade date when I sold the stock in year 2, do I need to report capital gain to CRA in year 4? I would be tempted to think that I paid the capital gain tax to CRA in year 2 & that’s it.

  14. AdjustedCostBase.ca

    You can use the actual exchange rate from the conversion (which would be advantageous due to the spread).

    Spending foreign currency results in a deemed disposition of the foreign currency, so a capital gain may apply.

  15. AdjustedCostBase.ca

    Cloud,

    According to IT-95R (http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html): “determining the income tax status of foreign exchange gains or losses is the identification of the transactions from which they resulted, or, in the case of funds borrowed in a foreign currency, the use of the funds.”

    So if you borrow US dollars and invest the borrowed funds in shares and the transactions for the shares are on capital account, then any gain or loss resulting from borrowing US dollars would be considered as part of your total gain or loss. For an example please see the following:

    http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/#comment-81348

  16. Jason

    Excellent write-up. I’m pretty sure I know the answer to this but thought I’d ask.

    If I have a US brokerage account and I trade US stocks in there, do I still need the ACB in Canadian dollars? (aka, as long as i’m a canadian citizen, do I need to ACB in Canadian dollars regardless of where the account is or what the account is)

  17. New Immigrant

    Great article!

    We are new immigrants and came to Canada with our US dollars earned before we arrived. We have kept them in a US dollar account in Canada. When we arrived the dollar was close to par with the CAD. Currently the CAD:US = 0.77

    Would we liable for capital gains tax :
    1. On US dollar expenditures from our US dollar account when abroad – holidays for example?
    2. The moment we invest same US dollars in stock quoted on US stock markets?

    Thanks!

  18. M. Lymburner

    we are considering selling our vacation house in the US. We are Canadians. With the current exchange rate, we will be realizing several thousands of dollars when converting the money from U
    S to Canadian…….do we pay tax on that money generated by the current exchange rate in Canada?

  19. Ray

    Thanks for this great article. I am confused about one point. In the example of the Yahoo transaction (purchase of a security within the USD account), you use the current market exchange rate for calculating the FOREX ACB and capital gain/loss, as well for the calculation of the ACB of the Yahoo shares. I would have thought the calculation of the ACB of the Yahoo shares would use the internally generated exchange rate of the US cash account. Thanks for your comment

  20. AdjustedCostBase.ca

    Ray,

    I cases where you have converted CAD to USD to make a purchase, I would suggest using the actual exchange rate. But there are some cases where only a deemed disposition of foreign currency occurs and an actual exchange rate is not available so you’d need to look up the rate (for example, when you purchase USD shares with USD).

  21. AdjustedCostBase.ca

    M. Lymburner,

    If you immediately convert the USD cash to CAD after receiving the proceeds then there may be little or no capital gain/loss on the USD cash. However, there will be a capital gain or loss realized on the property. Note that there are many other tax considerations on the sale of foreign property, aside from capital gains.

  22. Long Term Confusion

    A long running US Dollar GIC (renwed often) of money brought from the USA (years ago) and added to by dividends from US stock holdings and interest gains was partially converted and reinvested as Cdn dollar GIC due to favorable exchange rate.

    How to determine the adjusted cost base? The money going into the account and interest had tax paid on it.

  23. AdjustedCostBase.ca

    Long Term Confusion,

    A USD GIC is considered to be funds on deposit and thus the ACB is calculated as USD cash (and your ACB is maintained jointly with any other USD cash you own). No disposition occurs at maturity unless or until the funds are converted to another currency, or used to purchase a negotiable investment or other asset. Your ACB for USD cash should also be adjusted for any interest payments for the GIC.

    http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html

    “Foreign currency funds on deposit are not considered to be disposed of until they are converted into another currency or are used to purchase a negotiable instrument or some other asset, i.e. foreign funds on deposit may be moved from one form of deposit to another as long as such funds can continue to be viewed as “on deposit”. Term deposits, guaranteed investment certificates and other similar deposits which are in fact not negotiable, are considered funds on deposit.”

    [This comment has been amended for corrections.]

  24. Jason

    Just to clarify. When YAHOO is finally sold, I assume we have to enter 2 transactions as well

    1/ A sell transaction for YAHOO

    2/ A buy transaction for USD?

    I would assume the logical transactions should be

    1/ a sell transaction for YAHOO in USD
    2/ for ACB purpose, the USD must be converted to CAD (even though no actual transaction occurred). Therefor it is a SELL transaction in USD to CAD

  25. AdjustedCostBase.ca

    Jason,

    I’ll assume you mean that you’ve sold YHOO and keep the proceeds in USD (not converting into CAD). In this case the following transactions would occur:

    1) Sell YHOO
    2) Buy USD

  26. Dave

    I’m a Canadian citizen who works for a U.S company based in Canada . They offer a international stock purchase plan in which they match up to 5% when purchasing company stock…at the time of purchase we op to pay the tax on the company match…My question is.. if i cash that stock and move it into a U.S bank account and then use that money to travel and spend in the U.S.. do i have to pay capital gains on it

  27. jason

    make sense. How about the monthly fee like stock data fee, which doesn’t have corresponding buy/sell of stock. I would assume they’re expense and is used to reduce any profit you make. If the monthly fee is in CAD, I would assume it is best to have a CAD security.

    With that in mind, don’t you think we have to keep track of the CAD as such

    1/ sell Yahoo, record the ACB in Canada dollar. One entry in adjustcostbase.ca
    2/ buy USD using the amount in #1. one entry in adjustcosbase.ca. The exchange rate is the same as #1.
    3/ every month, record the monthly fee as commission. enter 0 shares and 0 price and use Security name CAD. exchange rate is 1. Record the FEE as a LOSS in profit and loss
    4/ if the monthly fee is in USD, enter 0 shares and 0 price and the usd exchange rate and the fee amount as commission. Record the FEE as a LOSS (in CAD) in profit and loss.

  28. AdjustedCostBase.ca

    Jason,

    I would agree with the first two transactions. However, I don’t think that data fees can be factored into ACB (unless you’re talking about exchange or ECN fees). A data subscription is not directly related to the purchase or sale of a specific stock.

    The CRA does permit some investing related fees to be deducted from income:

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/221/menu-eng.html

    I’m not sure whether a data subscription fee would be considered deductible, but my suspicion is that it would not be.

  29. Jason

    I agree that data fees should not be incurred after doing some more research on this.

    How about doing a transfer of investment account from one firm to another, I think we can include that as a fee. How do u enter that in the adjustcostbase.ca?

    Thanks.

  30. jason

    interesting, when I read about what is allowed under Carrying charges and interest expenses, there is nothing mentioned about the transfer fee and its related HST charges.

    Are they considered carrying charges?

  31. Jason

    CRA allows one to use daily, monthly or yearly exchange to calculate ACB. Is that true?
    It also note you must use the same type throughout the year.

    Does that mean I can use monthly for one year and then switch to yearly for another year in order to minimize the tax?

    In that case of yearly exchange rate, it may seem beneficial for 2015 (2016 may be even better) as we only use one rate throughout the year, it may reduce the USD gain.

    Any comment?

  32. AdjustedCostBase.ca

    Jason,

    The CRA unfortunately, is not complete clear on this, and in fact is even contradictory.

    Throughout the CRA’s web site, they indicate that an average annual exchange rate can be used for reporting capital gains:

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/clc-rprt/menu-eng.html

    However, the CRA has contradicted itself by releasing the following statement (that appears to only be available in French):

    https://translate.google.ca/translate?hl=en&sl=fr&u=http://www.taxinterpretations.com/content/361423&prev=search

    “Key questions: What is the CRA’s position with respect to the use of average foreign exchange rates for the conversion of water equivalent of income and capital gains?”

    “Adopted Position: An average rate may be acceptable for items of income, but not for capital gains.”

    I have never heard of a monthly rate being recommended for calculating capital gains, so I would suggest sticking with either the daily rate, actual rate, or annual rate.

    In general I would recommend using either the actual rate or the daily rate. In cases where an actual exchange has occurred (as opposed to a deemed disposition), I would recommend using the actual rate over the daily rate. This is because the currency conversion spread (the difference between what you pay to buy and sell currency) will reduce capital gains slightly. I would also recommend being consistent with your choice.

  33. John M.

    reportable items re: Foreign Currency Cash
    This query pertains to Jason’s questions posed Feb. 6, 2016 in regards the effect of “payments” (fees, interest paid, withholding tax) on positive foreign currency cash balances. Would such “payments” (USD for example used or “sold” in such events) be considered taxable events in an account where the foreign currency is transacted primarily in terms of capital purchases/sales? These “payments” are not directly related to any specific capital transaction in the foreign funds. In other words would such foreign cash balance reductions result in possible, deemed, reportable currency gains/losses?

    John M.

  34. AdjustedCostBase.ca

    John,

    If a payment of foreign currency isn’t for the purchase of capital property, then there still may be a gain or loss on the foreign currency, because they foreign currency itself may be capital property. For example, if you spend foreign currency on a vacation, there would be a deemed disposition on the foreign currency, even if it’s spent directly without any conversion.

    More information about this can be found here:

    http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html

    “The following are examples of the time when the Department considers a transaction resulting in the application of subsection 39(2)…funds in a foreign currency are used to make a purchase or a payment”

  35. peter

    If a capital gain in CAD of US securities bought with US dollars (margin or cash) includes an embedded capital gain + an embedded foreign exchange gain or loss , then when the security is sold and funds are left in US account wouldn’t you be double taxed on further conversions of those funds to Canadian dollars since you’ve already paid this “phantom” capital gain (assuming the conversion of currency is at the same exchange rate as when the security was sold). The reason I ask is that it seems the exchange of cash and a prior investment are two separate unlinked transactions for tax purposes.

  36. AdjustedCostBase.ca

    Peter,

    I don’t see this as a double taxation because you’re never taxed twice for currency fluctuation over any given period of time. When you sell the shares the capital gain will be based on the price movement of the shares as well as USD$. If you leave the proceeds as USD$ you won’t incur a capital gain or loss until the USD$ are sold (or deemed to have been sold), and this gain or loss will be based on the fluctuation only after the sale of the shares/deemed purchase of the USD$ (assuming for simplicity that you don’t own any other USD$).

  37. peter

    Regarding the double taxation I use this example:

    USD:CAD = 1:1 .
    Buy US stock for $100 USD ($100 CAD).
    USD:CAD = 1.5.
    Sell US stock for $200 USD ($300 CAD).
    Capital Gain:$100 core gain + $200 forex gain = $300 stock capital gain.
    Now you pay tax, let’s say 30% or $100 CAD.
    The $200 USD is still sitting in US dollars.
    If you now convert $200 USD to CAD (assume exchange is still 1.5) = $300 CAD.
    What is the cost basis of these $200 USD? I would say you should pay no tax on the conversion because it was already paid in the investment calculation. But I’m not sure if a portion of this amount is in fact an additional gain.

  38. AdjustedCostBase.ca

    Peter,

    Your calculation for the capital gain on the shares is not correct. The gain is equal to:

    (USD$200 x 1.5 CAD$/USD$) – (USD$100 x 1.0 CAD$/USD$)
    = CAD$200

    For the gain on the USD$ cash, assuming that:

    a) You don’t own any other USD$ from the time the shares are sold until 30 days after the conversion to CAD$ (for simplicity, otherwise the ACB calculations would be more complex)
    b) The exchange rate is the same at the time the shares are sold as at the time of the USD$ to CAD$ conversion
    c) There’s no spread or commission paid to convert from USD$ to CAD$

    then the capital gain on the USD$ would be zero. Your ACB for USD$ is CAD$300 (USD$200 x 1.5 CAD$/USD$) when the shares are sold (when the USD$ are deemed to have been acquired), and the proceeds are also CAD$300 at the time of the conversion.

  39. John

    Are GIC transactions – all within the same foreign bank account – recognized by the CRA as separate transactions (as though they occurred in a brokerage account)? Since the GIC’s have the same par value at time of sale and purchase I.e. no risk to principal, could they be considered as cash held in the account, subject only to tax on the interest as and when it is paid?

    If they are treated as equities (i.e. separate transactions), then am I correct in the following scenario:

    When buying a GIC with foreign funds, two transactions occur: 1) deemed sale of foreign funds to buy the GIC – taxable as capital gain/loss based on ACB of those funds, and 2) buy of the GIC expressed in Canadian funds, which will be relevant upon the redemption of the GIC.

    When the GIC matures – (whose principal expressed in the foreign currency has not changed (i.e. 100USD) – then three transactions occur: 1) payment of interest, whose CAD value is immediately taxable, 2) sale of the GIC whose par value when expressed in CAD may have changed due to exchange rates changes, immediately taxable as a capital gain/loss, and 3) a buy transaction of the foreign currency (principal+interest) which is relevant only when it is later spent.

    Many thanks for much insight into a challenging topic.

  40. AdjustedCostBase.ca

    John,

    The purchase and maturity of foreign currency/US dollar GIC’s do not result in a deemed disposition of foreign currency, according to IT-95R (when the purchase is funded directly from foreign currency cash and the proceeds are kept in foreign currency cash):

    http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html

    “Foreign currency funds on deposit are not considered to be disposed of until they are converted into another currency or are used to purchase a negotiable instrument or some other asset, i.e. foreign funds on deposit may be moved from one form of deposit to another as long as such funds can continue to be viewed as “on deposit”. Term deposits, guaranteed investment certificates and other similar deposits which are in fact not negotiable, are considered funds on deposit.”

  41. peter

    If you are converting from USD to CAD from a pool of capital, should you use LIFO, FIFO, or avg ACB for calculating gain/loss? Also, if a transaction converts from CAD to USD, then USD to CAD, then back from CAD to USD, is the last transaction an unrealized gain/loss or does it change the ACB of the pool?

  42. AdjustedCostBase.ca

    Peter,

    In Canada, the CRA requires ACB calculations for transactions on capital account. While LIFO, FIFO or other methods may be applicable in other countries such as the US, they does not apply here.

    The last transaction (a conversion from CAD to USD, or a purchase of USD) does not result in a gain or loss of any kind. It has the effect of increasing ACB.

  43. peter

    Thanks. So it sounds like there is not even the issue of mixed funds like in the UK. All accounts are aggregated together even if US to CAD conversions occurred from one account one must consider the ACB for that transaction including funds from separate accounts?

  44. AdjustedCostBase.ca

    Peter,

    Yes – ACB is calculated based on the notion of identical property. It’s not relevant whether it’s held in the same account or separate account: all identical property is pooled together for the purpose of calculating ACB.

  45. peter

    Thank you, one last question that confuses me a bit. There was an answer prior about how to calculate ACB and capital gain in CAD for a transaction in USD that was using a margin loan. I have never heard of deducing a forex gain/ loss for the loan portion from the forex gain/loss from the sale proceeds. Always either the capital gain was calculated correctly on a T5008 with box 20 and 21 filled in by the broker (even if you used a margin loan) or you just calculate the buy transaction in CAD on a gross basis and then subtracted the sale proceeds converted in CAD on a gross basis. Or was that discussion if the loan was in a different currency than the stock purchased?

  46. AdjustedCostBase.ca

    Peter,

    I believe the discussion you’re referencing relates to purchasing US shares on a US margin account. If you purchase either Canadian or foreign shares with a CAD$ margin account (I’m assuming this is what you’re referring to) then there is not foreign exchange gain or loss on the loan amount.

  47. Max Muntener

    If my wife and I hold investments in USD accounts, then I’m assuming that both of us should track the ACB of our USD cash since we have to pay taxes on the capital gains on an individual basis. Now my question is, what happens when my wife records a loss and within 30 days I report a gain on a USD transaction. Would the Superficial Loss rule apply for my wife’s transaction (she could not claim the loss) or would this rule only apply for the end of year gain/loss or not at all. It seems to me that things would get really complicated if this rule would apply for every little transaction during the year.
    Hope you can shed some light on this.

  48. Max

    So what you are saying is that the superficial loss rule would be triggered if my wife bought shares using her USD cash (selling USD) that would result in a USD capital loss (if ACB is higher than the current USD value) and within the 61 day window I would sell shares and receive USD (buying USD) and still own the shares 30 days after my wife bought the shares. The superficial loss rule would even apply if I just received dividends on any of my US holdings (which is equivalent to buying USD). This would almost mean that the superficial loss rule would always apply either for myself or my wife since we both hold dividend paying US securities in our accounts. The rule could even be triggered for both of us at the same time if we were actively trading shares in which case it could get quite difficult to track everything properly.
    Is all this correct or am I misunderstanding something.

  49. peter

    Would this formula be accurate? CAD gain on investment (with implied forex) + cash movement forex gain/loss / margin loan gain/loss? However the loan is attached to the investment and usually does not move except the incremental change from the cash transactions.

  50. Hunter

    Hi thanks for this great blog.
    I got a question on ESPP purchase with some discount in USD.(I am a Canadian)

    Scenario:
    We contribute toward ESPP from each payroll and then on 6/30 & 12/30 of each year, those contributed CDN funds are converted into USD, and purchase the shares at the lower price of 85% of the current market price, or the price at the beginning of the offer. The 15% of the difference are treated as income and taxed immediately.

    So let’s say, I have the following transactions:
    12/30/2012: contribution in CDN5687.78, CDN1 = USD1.008319; buy 46 shares at unit price U$128.56; Market price U$151.25
    6/30/2013: contribution in CDN5863.26, CDN1 = USD0.9710; buy 70 shares at unit price U$81.28; market price U$95.63

    several sale transactions in 2015 and withdrawing some USD to for vacation expenses.

    My questions:
    1. If I transfer the shares from one institution(E-Trade in USA) to another institution(RBC Direct Investing in Canada). Will it trigger capital gain/loss?
    2. Since the 15% of the difference was taxed as income, the ACB should be calculated based on market price of each purchase, not the real purchase price, is this correct?
    3. I get the idea that USD and the stock need to be tracked seprately. But on the USD, which should be used as the cost for each purchase? The nominal vaule, or the market value. Eg, on 12/30/2012, what is the cost base for USD? 46 * 128.56 / 1.008319, or 46 * 151.25 / 1.008319? If we use 128.56, and assume this is the only purchase transaction and we sell immediately on that day at market price, we get 46 * 151.25 / 1.008319 back, so the gain is 46 * (151.25 – 128.56) / 1.008319, which is the 15% difference and already taxed as income. I think we should use the market value as cost base, is this correct?
    4. If I keep ACB of the stock in USD(for various purchases), and at the time of sale, convert the gain into CDN using the current rate, it seems that I get a much smaller gain than keeping ACB in CDN. But as per this blog, we must keep ACB in CDN, which seems to be making a big difference on gain due to the exchange rate fluctuation.

    Thanks!

  51. AdjustedCostBase.ca

    Max,

    Yes, that sounds correct. However, the losses won’t disappear forever as they can be added back to ACB, so this has the effect of reducing capital gains when they eventually occur.

  52. AdjustedCostBase.ca

    Hunter,

    1. There’s no deemed disposition for transferring property between financial institutions as long as nothing is sold, so there should be no capital gain or loss.

    2. The ACB should most likely be equal to the cost of the shares, plus the taxable benefit, which should equal the fair market value.

    3. You haven’t mentioned any transactions involving US cash in your example, so it doesn’t look like it needs to be tracked here.

    4. You shouldn’t track ACB in USD$. ACB always needs to be tracked in CAD$. Please refer to the examples above and at http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/.

  53. Daniel

    Hi, thank you for your detailed posts and generous help!

    When calculating ACB for foreign currencies, how should I compute dividends paid? I have the following scenario:

    Suppose a stock I am holding in a USD investment account pays USD $50.00 in cash as a quarterly dividend, of which USD $7.50 is withhold tax, so the actual amount added to the account is USD $42.50. If the exchange rate is 1 USD = 1.35 CAD when the dividend is issued, does the USD ACB increase by ($42.50 * 1.35) = $57.38? How can I use the website to record this transaction?

  54. AdjustedCostBase.ca

    Daniel,

    You got it. It can be entered as a buy transaction for USD$ for 42.50 shares with a price of CAD$1.35.

  55. wendy

    Hi there,
    If I have purchased 100 share xyz for 60USD, and commission is 10USD. The transaction went through from my Canadian account, and currency was 1USD=1.37CAD. Then sold 50 shares for 50 shares for 62USD, and transfer 500USD to my USD bank account, and then transfer this 500USD to my CAD bank account. How should I calculate this capital gain?

    Thanks,
    Wendy

  56. AdjustedCostBase.ca

    Wendy,

    That would involve the following transactions:

    1. Purchase 100 shares of XYZ for ((USD$60/share x 100 shares) + USD$10) x CAD$1.37/USD$
    2. Sell 50 shares of XYZ for (USD$62/share x 50 shares) x [the exchange rate]
    3. Buy (USD$62/share x 50 shares) of USD$ for (USD$62/share x 50 shares) x [the exchange rate]
    4. Sell USD$500 for USD$500 x [the exchange rate]

  57. Dan

    Hi,

    Would a purchase made in foreign currency with a foreign credit card trigger the superficial loss rule even if no cash withdrawals were made to pay off the card balance within 30 days?

    Thanks.

  58. wendy

    Hi there,

    Thanks for your respond.
    Another question, let’s make it this way:
    If I have purchased 100 share xyz for 60USD, and commission is 10USD. The transaction went through from my Canadian account, and currency was 1USD=1.37CAD. Then sold 50 shares for 50 shares for 62USD, exchange rate 1USD=1.32CAD. I kept the USD in the USD savings account until after 6 months.

    1. Purchase 100 shares of XYZ for ((USD$60/share x 100 shares) + USD$10) x CAD$1.37/USD$
    ACB=6010*1.37=8233.7 ACB PER SHARE=6010/100*1.37=82.337

    2. Sell 50 shares of XYZ for (USD$62/share x 50 shares) x 1.3
    ACB={6010-(50*60.1)}*1.32=3966.6 ACB PER SHARE=3966.6/50=79.332
    Sell amount=(50*62-10)*1.32=3090USD.
    capital gain=3090*1.32-3966.6=112.2
    However, after the sell, I kept this sell amount 3090USD in my USD savings account, and didn’t transfer it to CAD after 6 month. After 6 month, I transfer the 3090 USD dollar into my CAD savings account, and the currency is 1USD=1.28CAD. What’s my ACB under this condition? And how should I report this? Should I report the capital gain/loss when I sold the stock or when I transfer the USD currency into CAD currency??

    Thanks,
    Wendy

  59. peter

    Wendy, what if you NEVER convert back the $3090 to CAD savings account? Does this mean you will have paid tax on a gain/loss that never has occurred and might never occur?

  60. wendy

    Hi there,

    Does that mean I need to report 2 capital gain/loss transaction? One is when I sold the stock? and one is when I transfer $3090 USD back to CAD savings account?

    Thanks,
    Wendy

  61. peter

    Just speculating but I don’t think the government will allow you to do this – they want their money NOW. Probably you report an unrealized gain as a realized gain and if the currency goes against you in a future year, you claim that as a capital loss? Still, it does seem you are paying gains ahead of realizing them. Is this fair?

  62. AdjustedCostBase.ca

    Wendy,

    In your example, there would be a capital gain or loss when you sell the shares, as well as a gain or loss when you convert the USD into CAD. However, your calculations for ACB are not correct as ACB per share should not change as a result of the sale of the shares (see the examples above).

    Peter,

    The USD would eventually incur a deemed disposition either on death or when the money is spent, even if the funds are never converted.

  63. peter

    I see, so if you keep the money in an investment account and do not spend it but it waits for a new investment, then the capital gain recorded on T5008 form is incorrect because it converts purchase and sale price to CAD from each sale which includes foreign exchange movements even if there was no conversion to CAD or even if the funds were not spent?

  64. AdjustedCostBase.ca

    Peter,

    All values should be converted into CAD when computing capital gains, so it sounds like your document could be correct, however, I can’t comment further about something I haven’t seen. Note that the calculation of a capital gain on a USD security is the same regardless of whether the proceeds are received in CAD or USD. If the proceeds are received in USD, then in the case there will be a an additional gain or loss at the time of deemed disposition.

  65. peter

    Thank you, that makes sense. However I notice loss carryback can only be used to offset capital gains 3 years back, so if the deemed disposition happens after 3 years, I assume the foreign exchange loss (if it should occur after 3 years) will not be able to offset the foreign exchange gain that was paid more than 3 years prior when US funds are not spent?

  66. AdjustedCostBase.ca

    Peter,

    That’s true that capital losses can only be carried back 3 years, but they can be carried forward indefinitely. Also, capital losses can be applied against any other capital gains, not just capital gains on the same type of property.

  67. Greg

    I see you found the CRA statement that said the average annual exchange rate can NOT be used for capital gains/losses calculations. Which contradicts the CRA website. It’s briefly discussed in this Globe and Mail article too: http://www.theglobeandmail.com/globe-investor/investor-education/calculating-gains-and-losses-on-us-stocks-part-2/article28747713/

    Have you heard any more about this? I

    The choice of using the either the average annual exchange rate or the daily rates of the transaction dates can make a substantial difference in gains/losses.

    For example:
    – In February I buy 1000 shares of company X at $1000 US/share, and the exch rate is 1.10. So it costs me $1,100,000 CAD to buy the shares.
    – In December I sell all the shares and the share price hasn’t changed, but the exch rate is now 1.30. So I get $1,300,000 CAD from the sale.

    Clearly this is a $200,000 CDN capital gain, but if I use the average annual exchange rate (let’s say it was 1.25) when reporting the transactions for taxes, both the purchase and sale would have been $1,250,000. I.e. no capital gain at all. (So I can see why the CRA doesn’t want the annual rate to be used).

    On the other hand, let’s say instead that the exchange rate drops over the year and my example above is reversed: I spend $1,300,000 to get the shares and get $1,100,000 from their sale. If I use the average annual rate, there will be no loss to report. So in this case I would choose to use the daily rate, so that I can claim a $200,000 loss. (I.e. in this case the CRA *would* be happy with me using the annual rate!)

    This is valid and legal according to the CRA website, but not according to their statement from Oct 2014…

    It seems a key issue is the interpretation of the statement re: how to fill out Schedule 3 on the CRA website:

    “Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate.”

    Do they mean transactions for one particular company’s shares? Or various transactions in general? (My guess is they mean transactions for a particular stock. E.g. you are selling off stock ABC in small chunks – using an average exchange rate kind of makes sense in this case). Assuming they mean multiple transactions for one stock, the statement then reads as you CAN NOT use the average rate if you just sell off something in one transaction. E.g. a simple, yet typical example. Let’s say I bought Apple shares 5 years ago. Then I sell them all in 2015 and the exchange rate is 1.3 CAD/USD on the day of settlement. But the average annual rate is 1.2 CAD/USD. It seems pretty clear that I’m not supposed to use the average rate (to try to lower my capital gain). On the other hand… if I had 30 other transactions during the year, for other stocks, and the CRA is saying “you had lots of transactions, you can use the average annual rate for them all”, well that’s what I want to do!

    Ultimately, the best way to lower capital gains and increase losses would be to pick and choose between daily rates and the annual average, depending on which works out better in my favour, for every transaction. Somehow I don’t think the CRA would be happy with this. 🙂

    Thoughts?

  68. AdjustedCostBase.ca

    Greg,

    I think your points are valid. That comment from the Globe and Mail article refers to the same statement from the CRA mentioned above. However, this appears to be a transcription of a verbal statement made in French from a single CRA employee at a conference (which isn’t published on the CRA’s web site). It also completely contradicts statements in multiple places on the CRA’s web site. As a result, I continue to believe that either method should be acceptable, but I recommend using actual exchange rates.

    As you’ve shown, the choice in using average exchange rates vs. daily exchange rates can have a significant impact on capital gains in years where the exchange rate has varied substantially. However, I would suggest that you be consistent with whichever method you choose as opposed to picking the one that works best on an annual basis. The CRA may not be happy if you continually switch methods.

    Regardless of the contradicting statement that average annual rates are not allowed, I would recommend using the actual exchange rate. This will factor in the spread on the exchange rate that you pay, which will ultimately reduce your capital gains or increase your capital losses. This is true no matter which direction the exchange rate goes, whereas using an average annual rate will benefit you in some years but harm you in others.

    I’m not sure whether there’s a requirement of multiple transactions overall or multiple transactions on a single security to use the average rate.

    I’m sure taxpayers would greatly appreciate if the CRA would clearly document these rules, but alas, that doesn’t seem to be the CRA’s style.

  69. peter

    I thought the rule was you can use one method or the other, but cannot switch once you’ve chosen one way. I interpret this to mean that if I choose one way and did it for years like that, it would be alright to change the method but I would have to use the new method for some reasonable amount of time (maybe one switch per lifetime??)
    Also, my broker produces T5008 with cost basis included and the gain is calculated using actual date of transaction, I feel a bit weary to use numbers that will be different than the T5008.

  70. Greg

    Thanks for your reply, and good point re: the using the actual rate. In my case I am usually not actually exchanging any currency myself… I’m trading in a US dollar account, and keep the proceeds of US stock sales as US dollars and re-invest in other US stocks. When I initially funded my US account, I should have taken the exchange rate spread into account as part of the ACB of stocks I bought. But I never thought of that, and that was years ago. Plus, that seems hard to document if you transfer CDN funds in, then use some of that for a stock purchase right away, but leave some for months and combine it with another transfer in of CND $… etc..

    I agree that using the exchange rates of the dates of the settlements is the safest – because it’s also the most honest. I’ll continue to play it safe and use the those rates… Because of how volatile the exchange rate seems to be these days, I think the CRA will soon need to clarify the rules and they will have to go one method only, and that will be with actual rates. They won’t choose the annual average because it would be too easy to take advantage of.

    Peter, my broker does not include any ACB at all on my T5008’s. In your case I would definitely use what the T5008 says (unless it’s incorrect), since the CRA has those and will compare against them. My gut feeling is that, because the rule was written before people had easy access to historical daily exchange rates, the intent of “using the average annual exchange rate” was to help make it easier for people in the case where they had multiple transactions for ONE stock. E.g. They had 1,000 shares of X, and they sold 100 per month for 10 months or whatever… Instead of trying to figure out exchange rates for each transactions, they could use the average. So I do think it is per stock, not either all one method or the other. But that being said, I also think the CRA would not be happy if they noticed different methods being used for different stocks in one tax year. It might raise a red flag and cause an audit, and then who knows what would happen, because the rule is open to interpretation…

  71. peter

    I think you can forensically deduce an estimated ACB of CAD funds by looking at total US fund inflows and outflows for the relevant year and adding it up – and in that case since it’s many years ago use the average exchange for the years in question. This way you don’t have to look at every transaction.

  72. Robert

    I am new to the site, so please bear with me. I used norbert’s gambit to convert approx. $50,000 Cdn to US $ for surgery which I needed to have in New Jersey last year (2015). On 2 different occasions I bought Horizon DLR ETF shares in Cdn Dollars and simultaneously sold an equal amount of shares of Horizon DLR.U ETF in US dollars, with the transaction settling in US Dollars. The broker (bmo) journaled the cdn DLR shares across to the US ledger on settlement day, both sides were bought on the same day and settled on the same day. Since the trade was completed within seconds of each other is their a tax consequence, do I not just report the buy and sell with same effective exchange rate? ie no gain or loss?
    Thankyou in advance for your reply.

  73. AdjustedCostBase.ca

    Robert,

    You can incur a gain or loss from Norbert’s Gambit. Although it’s likely to be small, there would be a gain or loss resulting from commissions, any fluctuation in the exchange rate between the time you bought or sold, and any commissions paid.

    Taking a concrete example, suppose that you purchased 4,000 units of DLR for CAD$12.50/unit with a commission of CAD$10.00. Your ACB would be (CAD$12.50/unit x 4,000 units) + CAD$10.00, or CAD$50,010.00. The act of journaling should not trigger a deemed disposition as far as I know.

    Then, suppose you sell all units of DLR.U for USD$9.95/unit and assume that the exchange rate at the time were CAD$1.245/USD$1.00 with a commission of CAD$10.00. Your proceeds of disposition would be (USD$9.95/unit x 4,000 units x CAD$1.245/USD$1.00) + CAD$10.00, or $49,551.00.

    You would therefore incur a capital loss of ($49,551.00 – $50,010.00), or -$459.00.

    Also note that there may be an additional gain or loss when you spend the USD$, as spending the foreign currency results in a deemed disposition.

  74. AdjustedCostBase.ca

    Peter,

    Unfortunately I’m not aware of any hard rules (let alone guidelines) about switching between methods.

  75. tom

    My daughter has student loans in US dollars from a time when the Canadian dollar was higher. If she pays them off now, does she thereby generate a capital loss? For example, $10,000 borrowed when the dollar was at par would cost approximately $12,500 to pay back today.

  76. Martin d'Anjou

    There are several rates available per day. I am not sure which ones to use when a Canadian investors trades US securities using a US Dollar account.

    1. US Dollar Noon (buy and sell)
    2. US Dollar Close (buy and sell)
    3. US Dollar High (buy and sell)
    4. US Dollar Low (buy and sell)

    It would appear to me that the best rate to use for taxation purposes would be the ones that minimize capital gain and maximizes losses, possibly the high and low.

    Let’s examine the sell of USD to buy YHOO. This transaction takes place on 2014-09-07. The high and low rates according to the Bank of Canada for this date don’t exist, so let’s pick 2014-09-08 instead:

    2014-09-08 USD High (1USD->CAD: 1.0903; 1CAD->USD: 0.9172)
    2014-09-08 USD Low (1USD->CAD: 1.0983; 1CAD->USD: 0.9105)

    The CRA wants to know the capital gain on selling the USD (back to CAD) when selling USD to buy YHOO. Since we’re in possession of USD, we need to use the 1USD->CAD rate, but should it be the high or the low rate? You probably want the least amount of CAD to minimize the gain, so using the USD High rate of 1.0903 would make sense. Is this correct?

    When YHOO is sold (at unspecified date), we are purchasing USD using “YHOO” as the currency. But we are really receiving USD in the account, and if we were to convert this USD amount to Canadian dollars, we would want to use the rate that gives us the least amount of CAD to minimize the capital gain. Again the USD High 1USD->CAD rate of 1.0903 seems to make sense.

    What do you think?

  77. AdjustedCostBase.ca

    Martin,

    I would recommend against that. The Income Tax Act specifically references the noon rate in section 261(1). Also, it’s always best to stay consistent.

    In cases where an actual currency exchange took place, I would recommend using the actual exchange rate. Odds are that the actual exchange rate is higher than the daily high for purchases and lower than the daily low for sales due to fees and the spread, so you’ll end up minimizing gains.

  78. Dave

    If a Canadian works in a foreign country and is paid in foreign currency, how is the ACB calculated? Using the annual rate? Or as the pay is received? Or…?

    And when the funds are left in the foreign bank, would any interest earned have to be added to the ACB?

  79. tom

    My wife received $30,000 US dollars from her mother’s estate in 2012 and converted them to almost $40,000 Canadian dollars in 2015. I suppose there’s capital gains tax to pay, but I can’t even find where to enter it on schedule 3. Where does it go?

  80. AdjustedCostBase.ca

    Tom,

    There isn’t really a proper spot for it. I would suggest including it in section 3 (“Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares”).

  81. Gary

    Just to clarify: “…if you receive foreign funds directly (for example: income, dividends, interest), the value in Canadian dollars is added to the ACB of the foreign funds.” Does this also applies to proceeds from a sale of U.S. securities?

    Going on your example above for the Yahoo shares, say you sell the 100 shares for USD$100/share for total proceeds of USD$10,000 (let’s say no commission here). Assume on that date, the exchange rate is 0.8, so therefore the ACB of the U.S. Dollar is now:
    CAD$88,978.62 + (USD$10,000 / 0.8)
    =CAD$88,978.62 + CAD$12,500.00
    =CAD$101,478.62

    Additionally, there is a capital gain:
    CAD$12,500 – CAD$8,958.72
    =3,541.28

    Is that correct?

    Thanks

  82. François

    This is a great article, and great information.
    and now it’s made me curious. I have old worthless francs left over. if i find a way to dispose of them can i somehow get a tax loss to use against my gain in US$?

  83. AdjustedCostBase.ca

    François,

    I would imagine you would be able to claim a loss, as you can when shares or debt become worthless, although I’m not entirely sure. Note that if you claim a loss, it can be used to offset any capital gain from the past 3 years or in the future.

  84. Jeremie

    Hi,

    First – thank you very much for creating this site, it has vast amounts of very useful information presented in a very understandable fashion for us commoners! The Q&A section at the bottom of each post also has incredible information.

    Second – my question is very personal, but perhaps will be useful for others.

    I did my first short sale this year on which I’ve ended up losing money in US$ terms as well as in C$ terms because of the foreign exchange movements. Having said that, I believe that I will need to be reporting a capital gain on my foreign exchange balance. Here is how I am looking at the situation (please consider that I am treating these transactions as capital transactions and not income transactions):

    Capital Gains / Losses on Short Sale:
    1) Short Sale of 500 SPY @ US$200: I receive US$100,000 in my US$ account (equivalent to C$131,000 based on the BoC noon rate)
    2) Covering of the Short Sale of 500 SPY @ US$205: I pay US$102,500 from my US$ account (equivalent to C$132,225)
    3) Calculation of my capital gain in this case is C$131,000 – C$132,225 = capital loss of (C$1,225)

    Capital Gains / Losses on Foreign Exchange Balance:
    1) I start with a balance of US$10,000 at an ACB of C$10,000 (FX parity)
    2) The short sale adds US$100,000 in my US$ account (equivalent to C$131,000 based on the BoC noon rate) which brings me to a FX ACB of C$141,000 (US$110,000)
    3) The covering of the short sale is considered a deemed disposition (as I am purchasing shares), which lowers my account by US$102,500 (C$ equivalent of C$132,225). This brings me to a US$ balance of US$7,500, but my ACB is of C$9,613.64 which can be obtained through the following mathematical operation: C$141,000 – C$141,000* (US$102,500/US$110,000)
    4) Calculation of my capital gain in this case is C$132,225 – C$141,000* (US$102,500/US$110,000) = capital gain of C$838.64

    So I will be reporting the following: capital loss of (C$1,225) on the share transaction + capital gain of C$838.64 on the FX transaction for a net loss of (C$386.36)

    Am I looking at this the right way?

    Thanks so much for your help!

  85. AdjustedCostBase.ca

    Jeremie,

    I don’t think that short sales are typically considered to be on capital account. See http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html:

    “The gain or loss on the ‘short sale’ of shares is considered to be on income account.”

    Also note that when calculating ACB for securities in a foreign currency, the gain/loss on the foreign currency should not be separated from the gain/loss on the price of the security (see http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/). This may work in simple cases, but not in more complex cases involving multiple purchases and sales.

  86. Jeremie

    Thanks for the above response.

    I am aware of the treatment of short sales to be on the income account, but is this the right way to think about FX gains and losses? I could very much re-write the above example as a long sale with borrow.

    In the above, I don’t think that foreign currency was separated when calculating the ACB.

  87. AdjustedCostBase.ca

    Jeremie,

    I’m not sure which specific example you’re referring to, but ACB for securities in a foreign currency should be calculated by first converting all values into Canadian dollars, rather than calculating the gain on the pre-converted amounts and multiplying it by a foreign currency gain.

    I don’t know much about the process of calculating a gain or loss on income account.

  88. BT

    Hello. It would be helpful (to me) if you were able to extend your example to show how the various balances would be affected in the following scenarios:

    – You sell some of your Yahoo shares at a different exchange rate.
    – You sell some covered call options on Yahoo. (Would this be the same as your dividend example?)
    – You buy (to close) your covered call options.
    – You sell some naked put options on some other stock.
    – You get a return of capital from a stock in USD$.

    Would this be possible?

  89. AdjustedCostBase.ca

    BT,

    Some information about buying stocks denominated in a foreign currency is available here:

    http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/

    And details on ACB calculations for stock options are available here:

    http://www.adjustedcostbase.ca/blog/adjusted-cost-base-and-capital-gains-for-stock-options/

    The method for calculating options on capital account would be the same when denominated in a foreign currency, except all values (share prices and commissions) should be first converted into Canadian dollars.

    The sale of naked options is normally considered by the CRA to be on income account. However, the CRA will accept reporting on capital account provided it is done consistently from year to year (see IT-479R: http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html).

    A distribution from a foreign stock is never considered to be return of capital, even if the foreign country considers the distribution to be as such.

  90. Tony

    Let’s say I have US$ (bought when 1CDN = 1USD) in my bank regular US$ saving account. Can you tell me will I have to pay tax on capital gain if I do transfer to my US$ RRSP trading account, and what if I do transfer to my US$ TFSA trading account. Will it be still counted as deemed disposition (all transfers at the same bank and no money conversion take place).

  91. MARC

    Hi and thank you for this interesting discussion.

    I was wondering if I have to declare capital gains if I buy US$ in January and spend them on vacation next July. In theory, spending my US$ in rental, food and leisure would be considered disposition and so if I spend 5000$ USD I should calculate what the cost in CAD will if I had done the conversion in July and report any gains or losses compared to the value of the purchase in January, right?

  92. AdjustedCostBase.ca

    Marc,

    Yes, spending foreign currency results in a deemed disposition according to IT95R:

    “The following are examples of the time when the Department considers a transaction resulting in the application of subsection 39(2)…funds in a foreign currency are used to make a purchase or a payment”

    Note that individuals are subject to an exemption – the first $200 of capital gains or losses for a year does not count as a gain or loss.

  93. Andrew

    Great website.

    I created a login and used your adjusted cost base tool but ran into an issue immediately. Perhaps you could help me out or tell me if my work around is accurate.

    I already figured out my gains and losses through the sales of my us securities so I simply Placed all of my buys and sells of the foreign currency (US dollars) into the adjusted cost base software to see if I had a gain or loss on the currency (I didn’t bother entering the data for the stocks because I already had them figured out).

    So, let’s say I bought $50,000 US dollars on April 1 in my marginal account. I used the actual exchange rate I received and followed your example of how to input the data. My first transaction was the purchase of a us equity and I bought $145,000 worth with my $50,000 (obviously borrowing money on margin to make the purchase).

    To do this transaction I followed your example. So, I entered the data as if i sold my US dollars to Canadian dollars and bought the stock with the Canadian dollars. On April 14 I then sold the stock so I theoretically bought US dollars.

    Upon entering this data it thought I was performing a short sale (even though I was simply borrowing on margin) and it brought my ACB to zero.

    My work around was setting the date of the sale of the US dollars on the same date as the purchase even though they were two weeks apart. However, I entered the data for the noontime currency rates on the actual settlement date. This kept the account in the positive so that the software didn’t ever think I was short selling. Would this be ok?

    If yes, great.

    If not, how do I go about convincing the software that I was not shortselling? Should I not have entered the data for currency independently of my us stocks? Did this cause issues?

    Hopefully all of that made sense.

  94. Alan

    I have some US stocks that pay quarterly dividends. Do I calculate ACB using the full dividend amount and then recalculate ACB treating the withholding tax as deemed disposition?

  95. Sev

    Hi,

    I have the same problem as Andrew. I read the comment you linked to, and while that makes sense from a tax perspective, i.e. a gain/loss on the loan of margin, there doesn’t seem to be any way for the ACB website to record this. As Andrew mentioned, when you ‘sell’ more USD than you have, the site deems it a short sale, puts your cost basis at zero, and shows negative shares.

    I recreated the scenario posed by Rihana in the comment you linked to, and I can’t find any way for the site to reflect the $40K forex loss on the borrowed margin.

    Do you have any suggestions?

    Thanks

  96. AdjustedCostBase.ca

    Sev,

    You could handle this situation on AdjustedCostBase.ca by adding the foreign currency gain (or subtracting the foreign currency loss) from the proceeds of disposition in the sell transaction.

  97. Sev

    Thanks for the reply.

    While you could add/subtract the gain/loss to/from the proceeds for tracking purposes, in doing so you’d have to manually calculate and track said gain/loss.

    In Rihana’s example, that’s pretty easy. However, in real life, when using margin on a portfolio, it’s not nearly so clean cut. For example, dipping into margin isn’t really associated with one particular holding. The margin is on the portfolio as a whole, which may contain dozens of different holdings, if not more. You may buy a number of securities on margin, sell securities purchased long before going on margin which then effectively ‘repay’ a portion of the loan, reducing margin, etc.

    When using all your own cash, this is fine, as you can enter the corresponding USD disposition along with each buy/sell of a security, and the ACB website will keep a running total of how much USD you have, your ACB, your forex gains, losses, etc.

    But when you are in the negative on ACB, it no longer does this, so effectively, any forex gains/losses while using margin are not tracked.

    Here’s a quick example which will hopefully demonstrate what I mean:

    https://i.imgur.com/shc88AC.png

    Notice that when on margin, the website treats it as a short sale, doesn’t track ACB for the transactions after entering margin, and therefore doesn’t keep track of any potential gains or losses in forex.

    Is there a different way I should be doing this, or are these magin scenarios simply beyond the scope of this website?

    I thank you again for your time. I truly believe you’re doing the Canadian population a great service!

  98. AdjustedCostBase.ca

    Sev,

    AdjustedCostBase.ca does not support calculating capital gains for transactions involving short sales (other then when options are sold to open). According to IT-479R:

    http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html:

    “The gain or loss on the ‘short sale’ of shares is considered to be on income account.”

    Furthermore, I’m unclear on what general calculation method could be used for short transactions on capital account, if in fact this were allowable.

    IT-95R seems to suggest a special case where foreign currency margin gains and losses can be considered to be on capital account if the funds are used to invest on capital account, but it’s difficult to say if this should apply when the pool of borrowed funds is not associated with a single stock purchase. I would suggest contacting the CRA or a tax professional for clarification.

    Also note that IT-479R suggests that one of the factors for securities transactions being considered on income account is whether “security purchases are financed primarily on margin or by some other form of debt.”

  99. Rahim

    Hello,

    In my non-registered account, i first convert CAD to USD, pay the broker conversion fee, and then do option trades. All trades are bought and sold in USD.

    Using the bank of canada yearly average rate, i have calculated the gain/loss for each option trade in CAD. Below is a sample.

    Number Name of fund Year of Acquisition Proceeds of Disposition Adjusted Cost Base Outlays and Expenses (from dispositions) Gain (or loss)
    1 EBAY Option 2017 $85.71 $64.96 $6.52 $14.23

    Now my question is how do you deal with the CAD/USD part for the actual currency conversions to fund the account.

    Looking at your example above, it seems like you need to log each and every transaction. In my case, there have been 14 transactions throughout the year from CAD to USD to fund the account. In addition to this, there have been 88 fully completed option trades (Open/Adjustment if Required/Closing). If each transaction on the specific day needs to be logged, this would results in at least 200 entries for the year which doesn’t seem practical.

    The average conversion rate to fund the account was 0.7590 and the bank of canada yearly average rate for 2017 is 0.77006. So there is a few pennies difference. $29,505 of CAD was converted to USD. So since the loonie appreciated, the currency loss would be about $424 however in my mind this is just a theoretical loss. One day when the USD is converted back to CAD, this is when the gain/loss should be dealt with.

    Is that correct?
    Also if you are using the Bank of Canada yearly average rate, wouldn’t the results wind up the same, instead of logging each individual entry and doing the currency conversions back and forth? Like in your example you are using the daily conversion rate each time, what is the average rate was used for each entry? Wouldn’t that simplify everything?

    Thanks, RK

  100. AdjustedCostBase.ca Post author

    Rahim,

    When you sell shares denominated in a foreign currency without converting the proceeds into Canadian dollars, the gain or loss on the underlying currency isn’t just theoretical: you’ll incur a gain or loss that depends on both the fluctuation of the share value as well as the fluctuation of the foreign currency relative to Canadian dollars. Please see the following for some examples:

    https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/

    The gain or loss on the shares in these examples would be the same regardless of whether the proceeds are kept in foreign currency or received as Canadian dollars.

    It’s possible that in some subset of cases where specific conditions are met that the capital gain can be calculated in foreign currency and then converted into Canadian dollars. However, I would advise against using such a shortcut as any potential simplifications would be negated by the need to carefully consider whether these conditions are met.

  101. Rob

    HI:
    My question is: When I am converting the sale of stocks and am trying to convert US positions to CDN, where do i find the BoC exchange rates to use, and would i use yearly rate for trades/proceeds that occur throughout the year, or if a sale occured in Jan, Mar, June for instance, use a monthly exchange rate or apply the daily rate for that trade occuring on that settlement date? Do you have a link to BoC info i seek for 2017 US rates? Very much appreciated!
    Rob

  102. AdjustedCostBase.ca Post author

    Rob,

    The Bank of Canada provides daily exchange rates here:

    https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/

    Note also that AdjustedCostBase.ca Premium subscribers can apply these exchange rates instantly to a transaction on AdjustedCostBase.ca.

    The CRA has stated the following:

    “Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate.”

    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/calculating-reporting-your-capital-gains-losses.html

  103. Daniel

    Hi,

    On CRA Schedule 3 the fourth column is for “Outlays and expenses (from dispositions)”. When reporting capital gain/losses, is it possible to claim in that column any wire transfer fees incurred during foreign currency conversions executed through online exchange services such as XE Money Transfer?

    Thanks.

  104. Michel

    Greetings,

    Great website – congratulations.

    My wife and I came back to Canada (in Jan 2017) after 18 years of being non-resident. We came back with most of our cash assets (including stocks) in USD. Could you help with the first transaction for tracking cash – let say $ 100,000 USD on Jan 3rd, 2017 ? I am confused with the CDN>USD vs USD>CDN. We do have a Premium account and I am hoping that it will make it easier :).

    Also, we held several Canadian stocks listed in the US in USD via a US based broker. We moved the whole portfolio in Canada with Questrade and switched all the Canadian stocks from US to CND dollars ( a simple swap / book entry done by Questrade). An example of that would be Barrick Gold – our shares of ABX.NYSE got swapped with shares of ABX.TSE. Same quantity and no commission.

    If you could comment / help with the above – we would appreciate.

    Many thanks and best regards,

    Michel

  105. AdjustedCostBase.ca Post author

    Thank you, Michel!

    According to “Tax Guide for Investment Advisors” by John Mott:

    “When an individual becomes a resident of Canada, he or she is deemed to acquire all of the property owned at that time (subject to exceptions, such as real property situated in Canada) at a cost equal to the fair market value of the property. This provision establishes opening cost bases for the taxpayer’s property, for the purpose of computing gains and losses on subsequent dispositions.”

    On AdjustedCostBase.ca you can add a “Buy” transaction for 100,000 units of USD on Jan. 3, 2017. As an AdjustedCostBase.ca Premium user you may use the exchange rate lookup function to set the exchange rate for that date.

    As far as I know, journaling shares from a US exchange to a Canadian exchange does not result in a deemed disposition. So there would be no immediate capital gain/loss or change in ACB.

  106. Rachel

    I have an American held mutual fund that automatically reinvests all of it’s dividends and gains into itself. This means that every year that I don’t touch the account at all, there are 2-3 purchases of shares. This has been happening for several years and now that I’ve sold some of the shares, I need to calculate the Adjusted Base Cost in order to figure out my Capital Gains/Loses for my Canadian taxes.

    The mutual fund tracks it’s own Cost Basis and Average Cost Basis/Share (in USD, of course). Can I just convert the Average Cost Basis/Share into Canadian Dollars (using the exchange rate for the day that the last purchase was made) and use that for my Adjusted Cost Base? It seems to me like Average Cost Basis/share is the same thing as the Canadian Adjusted Cost Base/share but I’m a lay person and could be misunderstanding these concepts.

    Or do I somehow need to be converting into Canadian Dollars at each sale and somehow compounding for the different in the Canadian Dollar vs USD over time (which I know is something you do every year essentially when you claim your capital gains from investments)?

    Part of my problem comes from the fact that prior to 2012, my account did all this for me and had done for my whole life (but he’s retired) so I have past tax returns to look at for examples. However, the online historical tracking of my mutual funds cost basis only goes back to 2012 so I can’t directly cross check how i’d calculate it with how my accountant calculated it. Also the number he seems to have used for my ACB looks like it’s significantly higher than what I would get if I took the US Average Cost Basis/share and just converted it into CAD. That’s why I wonder if he’s done some sort of historic tracking of differences in the two currencies. And since he’s retired I can’t get any of this historical data from him. I guess I could get a new accountant but I don’t know how he could be expected to calculate it any differently than me based on the information I have. I feel like it should be possible to calculate this with all the information I already have.

  107. AdjustedCostBase.ca Post author

    Rachel,

    In general you cannot correctly calculate ACB by multiplying a US dollar cost basis value by the current exchange rate. Firstly, the ACB for a US security needs to be calculated based on the purchase amounts converted into Canadian dollars on the dates of purchase. Secondly, there are several acceptable methods used to calculate cost basis in the US, and they are not necessarily equivalent to the method required to calculate ACB.

  108. Ron Marshall

    So glad to see detailed info on this topic – thank you!

    1)
    Can you clarify the effective date of the foreign currency gain/loss rules above?

    2)
    If $USD was held since the early 1990s (varying balances due to US security buy/sell activity), would it be necessary to go back to the very beginning to determine its $CAD ACB?
    Or what might be some (if any) of the shortcuts acceptable to CRA?
    Eg. beginning $CAD ACB to be the $USD at the daily FX rate as at Jan 1 of the most distant taxation yr still eligible for CRA audit, and then updated according to the rules from that point forward?

    3)
    If a taxpayer was previously using the average annual $USD/$CAD exchange rate for capital gains/losses on US securities, would CRA allow a retroactive switch to actual/daily exchange rates (eg. back to the 2014 taxation yr)? Or would any resulting refunds be denied?
    I used daily exchange rates for the first time for 2017 after seeing this blog, but daily rates would’ve resulted in lower net taxable capital gains for 2014-2016 (lower for 2 of those yrs and higher for 1 yr).

    Would CRA allow a retroactive switch to actual/daily rates (and any possible resulting refunds) back further than the 2014 tax yr (eg. back to 2008) ?

  109. Sam

    Hi,
    I used to work in US before immigrating to canada. I brought US $ cash from US income/savings and deposited this in to US $ checking account in Canadian Financial institutuion.

    I am thinking of depositing into USD GIC or USD High Interset Savings Account ( HISA )(for eg. TDB8152) for better returns. As I have not converted CAD $ to get USD $ cash, I wish to know:-

    1. Was I supposed to have been tracking ACB from the day I deposited USD $ cash in Canadian Financial Institutuion?
    2. Is Capital gain/ACB tracking needed for HISA and GIC in my situation?

    Thanks very much for all the help.

  110. AdjustedCostBase.ca Post author

    Sam,

    The taxation of capital gains on USD cash doesn’t depend on whether the funds are held at a US or Canadian financial institution. The taxation is the same either way.

    When you become a resident of Canada, you are deemed to have acquired all of your capital assets for their fair market value on that date. So your initial ACB of USD would be determined on that basis, rather than when you moved the US cash into a Canadian financial institution.

  111. SamNight

    Hi,

    I have a followup question in regards to your reply on USD GIC:-

    “A USD GIC should be taxable in a very similar way to US shares. Note that unlike a CAD GIC, which in most cases should not result in a capital gain or loss at maturity, when a USD GIC matures, you will have a capital gain or loss resulting from fluctuations in the exchange rate.”

    Per CRA IT-95R – Foreign exchange gain and loss, the last para states that:-

    “Foreign currency funds on deposit are not considered to be disposed of until they are converted into another currency or are used to purchase a negotiable instrument or some other asset, i.e. foreign funds on deposit may be moved from one form of deposit to another as long as such funds can continue to be viewed as “on deposit”. Term deposits, guaranteed investment certificates and other similar deposits which are in fact not negotiable, are considered funds on deposit.”

    So, when the USD GIC matures, (if it is either renewed to another GIC term or moved to another USD savings acct deposit), per CRA statement above, I interpreted it as Capital gain/loss does not arise as funds have not been considered disposed of. However, per your reply above on USD GIC, Capital gain/loss arises.

    I was considering, when the USD GIC matures it would be sufficient to include the USD interest earned on the date of GIC maturity to calculate the ACB of US dollar. Ie. The ACB of the U.S. dollars increases by GIC USD Interest amount converted into Canadian dollars using the currency exchange rate as on the date of GIC maturity similar to the “example of $80 USD interest” mentioned in your post.

    Could you please help me understand if i am not interpreting IT-95R correctly in this regard and I should in fact calculate capital gain/loss for USD funds in – USD High interest savings account deposits and GICs.

    Thanks very much.

  112. AdjustedCostBase.ca Post author

    SamNight,

    You’re correct – since a US GIC is considered a non-negotiable instrument, a disposition of US currency wouldn’t occur at maturity, but rather only when the funds are converted to another currency or used to purchase a negotiable investment or other asset. Thanks for pointing out the error. I’ve corrected the comment above.

  113. Rob

    I’ve been hounded with this issue for some time and CRA’s agents could not offer an answer nor could I locate any reference to it beyond this lovely blog posting. It deals with, what I feel, is a double taxation issue.

    A contrived scenario:

    – CCPC makes US$100 in sales in year 1. USDCDN exchange is 1.2. At year end, CDN$120 is reported to CRA as taxable corporate income on an unrealized gain of $20. Hence, taxes have been paid on the unrealized gain.
    – US$ funds are accumulated in a US$ corporate account “pool” for 20 years.
    – In year 20, US$100 is sold out of the accumulated US$ cash pool to CDN$ funds at an exchange rate of (again) 1.2 to CDN$120. CDN$20 is reported to CRA as a taxable realized gain on exchange.

    Now, this appears to be double taxation as the ACB in the currency sale was wrongly chosen at $20 rather than $0.00.

    The question posed to CRA was: how can the ACB be adequately computed if there is no fixed or known date from which the converted US$ cash was originally taxed over the prior 20 years? In other words, unlike with the purchase & sale of stocks which have a fixed purchase/sale date, how can an ACB be computed on realized gains on US$->CDN$ when that money had already been taxed at some prior and accumulated USDCDN exchange rates over 20 years?

    This seems, to me, to be a common situation for any Canadian company doing business in US$, reporting on the T2 in CDN$, and accumulating funds over time in a US$ account, only to dipose of those funds in future years.

  114. AdjustedCostBase.ca Post author

    Rob,

    You’re correct that CAD$120 would be reported as income in that scenario. But you would have deemed to have acquired the USD$ at a cost of CAD$120 at that time, so your ACB would be CAD$120 (provided this were the only USD$ owned, for simplification). If the USD$ were converted/spent/disposed of at a value of CAD$120, then your capital gain would be $0 (CAD$120 – CAD$120). So no double taxation occurs.

  115. Dave

    Hi,

    I have a question in regards to using annual average exchange rate vs exchange rate on the date of transaction.

    From the posts, I gather that, it is best to use exchange rate on the date of transaction. However, I am confused if its ok to use annual average exchange rate in my scenario below:

    Cash inflow :- I have 12 monthly interest payments, 12 monthly pension payments in USD in an year. For income calculation of both of these payments, I use annual average exchange rate.

    Cash outflow :- I have 6 credit card payments in USD.

    Instead of calculating 24 individual cash inflows (BUY transactions) and 6 cash outflows ( SELL transactions) using exchange rate on the date of each transaction, could I use annual average exchange rate to arrive at – one BUY transaction ( by totalling all cash inflows for the year and multiplying by annual average exchange rate) and one SELL transaction ( by totalling all cash outflows for the year and multiplying by annual average exchange rate).

    Issue:
    Using annual average exchange rate method, I did a sample calculation; I am getting different values for year end ACB and Capital gain for the year (but same value for year end USD Cash balance), by doing i) BUY transaction first and then SELL transaction vs. Ii) SELL transaction first and then BUY transaction. Not sure, if am making a mistake in the calculation. The below example describes the discrepancy in year end ACB and Capital gain for the year:-But, as shown in the sample dollar values there is a difference:-

    Queries:-

    1. In the scenario explained above with approximately 24 individual BUY transactions and 6 SELL transactions for a year, would it be ok to use annual average exchange rate to arrive at one BUY transaction ( by totalling all cash inflows for the year and multiplying by annual average exchange rate) and one SELL transaction ( by totalling all cash outflows for the year and multiplying by annual average exchange rate)?

    2.If using annual exchange rate is acceptable in this case, what is the correct approach – i) BUY transaction first and then SELL transaction ii) SELL transaction first and then BUY transaction as each of these two approaches are yielding different values for total capital gain for the year and year end ACB in CAD? (OR) Am I doing the calculation wrongly?

    Thanks very much.

  116. AdjustedCostBase.ca Post author

    Dave,

    Regarding average annual exchange rates, please see this comment from above:

    https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/#comment-124899

    You cannot group multiple purchase and sale transactions together. The outcome will be incorrect regardless if the amalgamated purchase appears first or the sale. Each purchase or sale transaction needs to be considered separately.

    In very limited circumstances this can work. For example, if purchases and sales are not interspersed. But I would strongly advise against doing that as it does not work in the general case.

  117. Dave

    I have query on how to capture the below mentioned transactions in adjustedcostbasis.ca:-

    Let’s say, I loan a friend, an amount in USD from my candian currency account. The loan is repaid in USD and goes to USD currency account without conversion.

    1. Loan is given from CAD to USD:-

    For eg. I convert 5000 CAD on date X in year 1 to 4000 USD. For simplicity, I am using 1 USD = 1.25 CAD;

    I track this transaction as a BUY transaction.
    ACB increases to = old ACB (ie. ACB on (date X -1) on year 1) + 5000;
    USD cash balance increases to = old USD cash balance (ie. USD cash balance on (date X -1) on year 1) + 4000;

    2. Loan is returned in USD:-

    For eg. Loan amount of 4000 USD is returned on Y date in Year 3 as USD going in to USD currency account (let’s say interest free loan),;

    Let’s say for simplicity, 1 USD = 1.3 CAD on Y date in Year 3;

    If I am to track this loan repayment to me as a Cash inflow as well, it will also be a buy transaction as follows:

    ACB increases to = ACB on (Y -1) date in year 3 + (4000 USD * 1.3 [USD to CAD exchange rate on Y date in Year 3]);= ACB on (Y -1) date in year 3 + 5200.

    USD Cash balance increases to = USD Cash balance on (Y -1) date in year 3 + 4000;

    So, even though loan is repaid with no interest, the loan as such results in 2 cash inflows for tracking :- (1) on X date in year 1 (2) on Y date in year 3, where as I loaned 5000 CAD on on X date in year 1 and received 5200 CAD in return on Y date in year 3. Instead, Should this be Capital gain?

    Could you please help me on how to deal this loan scenario and how to track these 2 transactions.

    Thanks very much.

  118. Bob G

    My wife and I are Canadian citizens. We relocated to the USA in 1991 and while there became American citizens. We lived and worked there for 12 years returning to Canada in 2002. During those 12 years our savings were in US$ and they remain in US$. In addition, I keep my US pensions in US$. In the future, if I convert a US$ lump sum to Can$ what would the adjusted cost base of the US$ be, bearing in mind that the US$ were earned over a period of 12 years?
    Thank you.

  119. AdjustedCostBase.ca Post author

    Bob,

    When you became a resident of Canada once again in 2002, you were deemed to have acquired the USD$ for fair market value at that time (i.e., it would be based on the CAD/USD exchange rate on the date you became a resident of Canada again). Your ACB would initially be equal to this fair market value. See the following:

    https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html#PBC

  120. Bob G

    Thank you for your reply.
    We repatriated to Canada in 2002 when Can$1.00 was valued at about US$0.65. In late 2015 and early 2016 Scotia Bank converted US$ to Can$ when Can$1.00 was valued at about US$0.74. However, for a cost basis they used May 2011 values which was when I started the account with them. At that time Can$1.00 was US$1.03. The result of all this was Scotia Bank declaring that I had a capital gain of approx $40,000. In my opinion I should have been claiming a substantial capital loss.
    Is it too late to review this file and, if appropriate, have corrections made?
    Once again, thank you.
    Bob

  121. rg

    If it were me, I’d request an amendment asap. Your experience reminds me of the importance of verifying and correcting bank-reported book values. I recently had to go through some hoops to get TD (Webbroker) to make two corrections. One for a transferred-in security (they used the value at transfer) and one that had shown “n/a” due to an old reported error (they used the value at the time of policy change when “n/a” was disallowed). But in your case, the transferred-in security was cash. I’m not sure how to even find out what book value the bank would report.

  122. AcLs

    Re: Alan’s query on May 17, 2017

    Did I miss your reply to Alan’s query, or did it get lost in the shuffle 😉

    I, too, am interested in his query.

  123. kc

    Does it matter if your stock market investments are considered to be on capital account or income account? I spoke to a CRA service agent on the phone a couple days ago and she said that since I invest on capital account, I don’t have to account for the gains or losses of the uninvested USD cash on account.

    That doesn’t really make sense to me. If this was the case, when CAD is strong relative to USD, one should load up on USD. Once the CAD weakens against the USD, not accounting for the gain in foreign exchange will result in getting tax free gains. It seems like even the CRA agents don’t even know how to explain it to the public. If they don’t know what they’re doing, how do they expect us to know what we are doing?

  124. AdjustedCostBase.ca Post author

    kc,

    I have never heard of foreign cash being exempt from capital gains and losses because it resides in a brokerage account that’s used for investing on capital account (except for the $200 exemption). That seems odd to me as well.

  125. Linda

    Hello,

    So good to find this blog, which has such a thorough explanation on FX tax issue.
    My question is about the convertion on savings or checking account.
    After my immigration to Canada, I transfered USD deposit from abroad to a Canadian Bank here, and deposited it into a USD savings account. Three years later, I convert the USD into CAD with this bank using my savings account. Is there any capital gains/loss for this kind of convertion?

    Thanks very much.

  126. AdjustedCostBase.ca Post author

    Linda,

    You were deemed to have acquired the USD at fair market value when you became a Canadian resident:

    https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html#PBC

    “If you owned certain properties (other than taxable Canadian properties) at the time you immigrated to Canada, the CRA considers you to have sold the properties and to have immediately reacquired them at a cost equal to their fair market value (FMV) on the date you became a resident of Canada.”

    Your case is equivalent to buying the USD at the time you became a resident at fair market value at that time, followed by selling the USD three years later at the time of conversion (this can be based on the exchange rate used for the conversion). The conversion from CAD and USD would result in a capital gain or loss.

  127. Linda

    Thank you for you reply.
    Since at the very begining of this blog, you mention ” The Canada Revenue Agency requires taxpayers to report capital gains on foreign currency when the transactions are on capital account. ”
    My understanding is that the bank’s savings acount or checking acount does not fall into the definition of “capital account”. Thus, there might be no capital gain/loss for convertion.

  128. AdjustedCostBase.ca Post author

    Linda,

    These transactions would likely be considered to be on capital account rather than income account, unless the trading resembles a business. Some factors that the CRA uses to determine whether trading is on income account are states in IT-479R:

    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it479r/archived-transactions-securities.html

    “(a) frequency of transactions – a history of extensive buying and selling of securities or of a quick turnover of properties,

    (b) period of ownership – securities are usually owned only for a short period of time,

    (c) knowledge of securities markets – the taxpayer has some knowledge of or experience in the securities markets,

    (d) security transactions form a part of a taxpayer’s ordinary business,

    (e) time spent – a substantial part of the taxpayer’s time is spent studying the securities markets and investigating potential purchases,

    (f) financing – security purchases are financed primarily on margin or by some other form of debt,

    (g) advertising – the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

    (h) in the case of shares, their nature – normally speculative in nature or of a non-dividend type.”

  129. Matt

    Thank you. I just have a question.

    I routinely buy USD for the purposes of immediately using the majority of it to purchase shares. I would assume that the price of USD would not change much in the time between buying it and the deemed disposition when I purchase the shares.

    When I log the USD purchase, it is simple enough to use the actual price, but for the deemed disposition, all I have is the daily price. This could cause a gain or loss, even if it was at the same price.

    Is it possible to just use the same price that I used for the currency transaction for the deemed disposition? If this is the case, they could cancel each other out, making it irrelevant to even do the calculation.

    There would still be residual cash as well.

    Any tips?

  130. AdjustedCostBase.ca Post author

    Matt,

    It is probably OK to use an average daily exchange rate given that the CRA accepts using an average annual rate, however:

    – In such cases you are likely realizing losses due to the fees charged for currency conversion when purchasing US dollars. By using the same price for the purchase and sale you are potentially foregoing the opportunity to claim capital losses.

    – ACB should be tracked jointly for all capital property, so if you own other US dollars then technically the ACB per share for the entire pool of US dollars should be used when determining the capital gain or loss, which will not necessarily be equal to the current value.

  131. sam

    Hi,

    I tried to read some the comments and it was useful. i have few questions still not clear.

    I will open nonregister acoount with canadian broker (Questrade for example), I buy and sell different US stocks and make some gain/lost during one year and also receive Dividend. How the system of tax for capital gain works in this system. How much withholding tax should i pay to US? are the withholding tax deductible from Canada tax for capital gain…??

  132. G B

    About superficial loss.. Let’s say I convert 50k USD to CAD, and from the ACB calculations explained above, I incur a loss of 1000$ because the rate changed since the acquisition. I can use that loss to offset other gains. But what if, within 30 days after that disposition, someone gives me 50 USD (or any other acquisition of USD) Does that invalidate the loss because it is not considered a superficial loss? Can I still use the loss of 950$ or is the entire loss lost. Thanks

  133. AdjustedCostBase.ca Post author

    G B,

    I believe that the superficial loss rule would apply in that situation, however, it would be only a partial superficial loss based on the units of foreign currency that were deemed to have be reacquired. In your example with a loss on USD$50,000 and a repurchase of USD$50, only (USD$50 / USD$50,000) 0.1% of the loss (or $1) would be considered a superficial loss. For further information please see the following:

    https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

    Also, the superifical loss amount could be re-added to your ACB of USD$.

  134. John

    Hello,

    If journaling a purchase (in CAD) to USD, is it correct to enter the transaction to BUY in CAD and then list the sell in USD (with the appropriate checkboxes to note that it is a USD transaction) accurate?

    This is in relation to doing Norbert’s Gambit.

  135. AdjustedCostBase.ca Post author

    John,

    The journaling of units from CAD to USD should not have any taxable consequences and you will not need to input a transaction for this step. When performing Norbert’s Gambit to convert CAD to USD you would need to input a buy transaction for the purchase of the CAD units and a sell transaction for the sale of the USD units (with the amount converted into CAD or inputted in USD with the appropriate exchange rate specified).

  136. John

    If there is a capital gain or loss from using Norbert’s gambit, wouldn’t one need to report that? I noticed that if the journal and conversion may result in a change that results as such per what I have entered as you noted.

    Also, what currency rate would be used in this instance. The date the journal was requested? The date of the CAD purchase? USD sell?

  137. AdjustedCostBase.ca Post author

    John,

    Yes, you a capital gain or loss with Norbert’s Gambit would need to be reported.

    The exchange rate would only be applicable for the sale in the case of using Norbert’s Gambit to convert CAD into USD. I would suggest using the exchange rate for the transaction date of the sale.

  138. Jens

    Re: how to deal with negative USD balances?

    The most straightforward example would be a USD credit card. Let’s assume for simplicity that you have 0 balances in any other USD accounts you might have, and you make purchases on your card, accruing negative balances.

    Section 6 of IT-95R states:
    “A taxpayer who has transactions in foreign currency or foreign currency futures that do not form part of business operations, or are merely the result of sundry dispositions of foreign currency by an individual, will be accorded by the Department the same treatment as that of a “speculator” in commodity futures, see 7 and 8 of IT-346R.”
    Section 7 of IT-346R states:
    “[in general] it is acceptable for speculators to report all their gains and losses from transactions in commodity futures or in commodities as capital gains and losses…”

    So even if you make frequent “trades” while travelling in the States, any foreign exchange gains/losses will still be on capital account.

    So let’s further assume that, upon paying off your credit card, you incur a capital gain or loss that exceeds CAD200. So how do you calculate that capital gain/loss? This is different from the Rihana example, because the transactions are “attached” to consumable goods and services, not investments that you will sell at a later date, where you can offset forex gains/losses on gains/losses on the investments.

    I understand that adjustedcostbase.ca will not calculate ACBs for negative balances. However, I found that it’s quite doable in an ordinary spreadsheet; you just have you invert signs in one place in your formulas.
    Within the vagueness of Sections 12 and 13 of IT-95R, which just prescribes that capital gains/losses must arise from transactions that trigger them (as opposed to accruals), it seems acceptable to use negative ACBs and trigger capital gains/losses whenever you make a payment to your credit card. Are you aware of CRA objecting to that practice? Or would you know a better way of accounting here?

  139. Jens

    In trying to find an answer to my previous post, I have come across this forum:
    https://www.financialwisdomforum.org/forum/viewtopic.php?f=32&t=121134&p=615745&hilit=margin+ACB#p615745
    So apparently you treat going into margin on a USD account the same as you would short-selling a stock: as a negative position. If I understand the authors correctly, you think of it as purchasing USD (or stock), and when you close the position/cover the short, you think of it as selling, which triggers a capital gain/loss, except that you invert the sign. So the number of USD/shares, as well as their book value, become negative, and an increase/decrease in value becomes a capital loss/gain, respectively. The ACB (per unit) remains positive as it should, because the negative signs cancel each other out.

    Whether or not this is on account of income or capital doesn’t matter. The calculation of gains/losses remains the same; you just report them differently.

    Does this make sense?

  140. Matt

    Hi Jens,
    This is exactly how I’ve been doing the math on this as well. I created a really complicated spreadsheet that takes into account whether your USD cash balance is positive, negative, transitioning from negative to positive, or transitioning from positive to negative and chooses the proper formula for the type of transaction selected. I wish there was someone to look it over though 😛

  141. Jens

    A question, hopefully not too off-topic, on transferring foreign currency to your spouse or common-law partner. If, say, I have 10,000 USD to put in her (not jointly owned) investment account, I see only the following 4 options:

    1. Hang on to the ACB, with all the accounting nightmares of tracking my percentage contribution to her investments and all resulting capital gains and dividends.
    2. File an formal election with my tax return to have the transfer deemed a sale at fair market value, triggering a capital gain/loss.
    3. Contribute the 10,000 USD to a spousal RRSP, which also triggers a deemed disposition at FMV with capital gains/losses.
    4. Convert the 10,000 USD to CAD before transferring it, which not only triggers capital gains/losses but also incurs currency exchange losses.

    In particular, I see no way I could gift her the ACB of these 10,000 USD, because with that, I would give away potential unrealized capital gains to someone potentially in a lower tax bracket.

    Is my assessment correct? And which of the four would you consider the least painful option?

  142. Olivier

    First, thank you for this site!

    I wanted to comment on the superficial loss rule for foreign currency cash. I came across this letter: https://taxinterpretations.com/cra/severed-letters/2008-0280111i7

    The interesting point is at the very bottom: “we have concluded that in the context of a foreign exchange loss on the disposition of cash, the cash would not be “property” for the purposes of subsections 40(3.3) and 40(3.4) and subparagraph 40(2)(g)(i). Consequently, those provisions do not apply to deny the foreign exchange loss (…)”

    Since these subsections correspond to the superficial loss rules, doesn’t it mean that the superficial loss rule does *not* apply to foreign currency exchange loss?

  143. AdjustedCostBase.ca Post author

    Olivier,

    Thanks for sharing this. While the “Principal Issues” and “Position” seem very clear on their own, the comments leave me a bit confused:

    – The logic in the “Stop-Loss Rules” section seems unclear to me.
    – Subsections 40(3.3) and 40(3.4) seem to apply to corporations, trusts and partnerships rather than individuals.
    – Another letter involving a capital loss for an individual disposing of US dollars suggests that the superficial loss rule should be considered: https://taxinterpretations.com/node/393969 .

  144. zephyr

    Amazing content and always a good (long) read to go through the comments. As usual lots has been clarified, but also new questions arise (likely due to vagueness of CRA!).

    From what I understand: foreign currency denominated accounts are pooled into one global pool for each individual currency denomination (e.g. all USD accounts are pooled together no matter their location), is that correct? So basically USD is treated as a big pool and any buying/deposits (e.g. liquidating US held securities) or selling/withdrawals (e.g. FOREX conversion into CAD) in/out of this pool needs to be tracked via ACB (in CAD of course) to determine capital gains/losses. This page and its content has been vital in helping me understand how this works, so hope that’s the correct way of looking at it!

    Based on the above, I have a few questions that hopefully someone can help me understand:

    1. with the $200 personal exemption, is this reset each year or simply carried over until it is triggered?
    2. with regards to USD denominated credit cards, is the only relevant event that triggers a gain/loss when the card is paid off by a USD account, or does each individual transaction need to be accounted for?
    3. my US broker sweeps all transactions into a money market settlement fund, so I’ve been treating that as a separate fund based on its symbol and not as a transaction in/out of the USD pool, is that correct? basically it’s like an exchange of shares from one security to another that triggers a gain/loss, but doesn’t ever go into USD.
    4. for dividend reinvestment (DRIPS), what is the proper way/order of transactions to account for? I have been saying that the dividend is immediately reinvested and the ACB and # of shares of the security is modified based on that and the income is reported on the tax return. Should the dividend income be added to the USD pool and subtracted at the same moment as well or can the money market fund sweep described in question #3 eliminate any ACB adjustment of the USD pool? I guess this would only really matter for superficial loss determination potentially.

    thanks again for all your help!

  145. AdjustedCostBase.ca Post author

    Zephyr,

    Your understanding sounds correct.

    1. The $200 exemption is an annual amount.

    2. I’m unsure about the timing of the dispositions when paying for items by credit card. Considering the disposition to be at the time when the credit card balance is paid off would certainly be simpler (and the choice wouldn’t have a huge impact if there is not much fluctuation in the exchange rate between the purchase and payment of your credit card bill).

    3. I don’t believe a money market fund and cash would be considered identical property, so ACB should be tracked separately for each.

    4. Since you never receive any cash in the case of a DRIP (with the exception of cash received in lieu of fractional shares for a synthetic DRIP) I don’t think there’s a need to increment your US cash balance and then immediately decrement it.

  146. zephyr

    thanks for the answers, ACB.ca! are you a one man army answering all these comments/questions? if so, very impressed! i can barely roll out of bed at a reasonable time these days haha

    1. what I meant is if a $200 gain/loss is not exceeded is the gain/loss zero’d out, or does it continue accruing until the point in a future year when it does exceed that amount? CRA says:

    “However, you only have to report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefit return.”

    So if you are at a 199 gain/loss for a year, does the ACB differential carry over to the next year or do we erase that 199 and start at a 0 gain/loss for the next tax year? I’m inclined to think that it would continue to exist and then if it exceeds 200 the following or subsequent years it would then trigger the exemption, but I haven’t been able to find an answer one way or another.

    Thanks for the answers on 2-4, that clears a lot up and I feel like I’ve been keeping track of things properly. The issue with ACB errors is that if you’ve made a mistake somewhere it cascades down the transactions in a horrible chain reaction!

  147. Roth

    how does one deal with monthly fees on a USD denominated account that aren’t tied to a specific transaction? Is the amount considered a commission on the transacted amount?

    as an example, say my bank charges USD5 per month to maintain the account, would the ACB be adjusted as USD5 “sold/withdrawn” with a USD5 commission charge each time that happens (multiplying each by the current forex rate, of course)? assuming currencies on par to simplify things by eliminating currency fluctuation: initial ACB of $100 would become $95 and a loss of $5 due to the fee or does the ACB go up to $105 without any gain or loss? thank you

  148. AdjustedCostBase.ca Post author

    Zephyr,

    The exemption amount resets every year to $200 (it’s not reduced by any use of the exemption in prior years):

    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/completing-schedule-3/bonds-debentures-promissory-notes-other-similar-properties/foreign-currencies.html

    “However, you only have to report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefit return.”

  149. AdjustedCostBase.ca Post author

    Roth,

    The fee results in a disposition of US dollars (the same as if you had spent the amount on goods/services).

    An account fee cannot be deduced as a commission when determining capital gains, but separately it may be possible to deducted as a carrying charge provided certain conditions are met:

    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22100-carrying-charges-interest-expenses.html

  150. zephyr

    thanks for the link! I’m not sure why this didn’t post, I think it may have something to do with an included source link, so I’ve removed it, I thought it was just in moderation. I had tried to post:

    re: $200 exemption I think I’ve been thinking about this incorrectly and this provides some insight:

    “For individuals, only an amount in excess of $200 of net gain or loss on the disposition of foreign currency (cash or other assets that are considered on deposit) is deemed to be taxable as a capital gain or deductible as a capital loss. This $200 exemption does not apply to the gain or loss realized on the sale of negotiable assets such as securities.

    For example, assume you deposit C$100,000 in a U.S. dollar HISA when the Canada-US exchange rate is par. You keep the funds there until the Canadian dollar strengthens, at which time you withdraw the funds from the HISA to purchase a publicly traded stock. At the time you purchase the stock, you have realized a foreign exchange gain. You must report this gain, less the $200 exemption on your Canadian tax return. If instead you withdrew the cash in U.S. dollars and placed the cash in your safety deposit box, you would not realize a capital gain.”

    From above it sounds like if you exceed the $200 threshold only that amount needs to be reported as a gain/loss and I’m guessing that if you are under that amount the $200 exemption would nullify the gain/loss for that tax year and that’s all that happens. I guess it’s strange for me to think about foreign currency as a security that needs to be tracked with acb just like a stock, so this confused me.

  151. Jens

    An update to my post dated March 27 on transferring USD to my spouse, based on my studying this site:
    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/transfers-capital-property/transfers-property-a-spouse-common-law-partner-a-trust-a-spouse-common-law-partner.html
    and Subsection 73(1) of the Income Tax Act.
    In a nutshell, transferring funds of any kind to other family members for the purpose of income splitting is verboten.

    1. Hanging on to the ACB and tracking my contribution to my spouse’s funds through all the investments she might make with them, seems to be the correct default way to account for such a transaction. But it’s very complex to do in practice, I wonder if any tax accountant (or the CRA) would bother, especially if the amounts are small (e.g. a few hundred dollars)?
    2. Filing an election with my tax return, stating that the funds are deemed sold to my spouse at fair market value and applying the capital gains/losses to my own tax return, is an option. And it simplifies bookkeeping a lot. But again, what will the CRA think if they receive a letter from me about transferring a few hundred bucks? Will this unnecessarily raise red flags?
    3. Contributing the funds to a spousal RRSP, or, as I have learned, her TFSA, will always trigger a taxable capital gain or loss, and I am off the hook tracking the funds any further, without having to write a formal election. Of course it requires her opening a USD-denominated registered account, and contribution limits apply.
    4. Converting the funds to CAD doesn’t help. That would be considered substituted property, so it’s still mine for tax purposes and I’ll still have to track the ACB of the funds I have contributed through all the conversions and apply the cap gains/losses/dividends from all dispositions to my tax return.

    Is this a fair assessment? Or is there any other option I haven’t come across?

  152. Roth

    Thank you for the link about carrying charges, that makes a lot of sense and it seems like fees associated with investment related income generation and/or business fees are really only deductible, which makes sense. Otherwise every individual would deduct their bank’s monthly charge fees for every account that charges them.

    I’d also be very interested on any more insight you have with regards to Olivier’s link and followup that you posted (https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/#comment-318985) I was just about to post the same link dropped in a forum post where a lot of folks are in agreement that superficial losses for foreign currency don’t matter for individuals. It would greatly simplify the calculation/tracking, but a lot of the related info on this matter seems quite old and I’m wondering if there is a more definitive recent answer, thanks!

  153. Roth

    just found your reply to a comment in another post: https://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/#comment-164094 where you link to a fairly recent 2017 tax interpretation and conclude with:

    “So it seems that it’s the CRA’s position that losses from dispositions of foreign currency are not subject to the superficial loss rule.”

    Based on that, would it be safe to say that any superficial losses for USD held accounts can just be treated as capital losses and avoid the headache of partial superficial losses and re-adding superficial losses to ACB? That would seem like it would be a lot easier to deal with accounts that have a lot of deposit/withdrawal transactions.

  154. David Jones

    Do you have a source for capital gains being taxable on the purchase of securities? I’ve chatted with a couple of CPAs and both said it’s on the disposition only.

  155. AdjustedCostBase.ca Post author

    David,

    Capital gains do not occur at the time when a security is purchased.

  156. Kc

    Does he mean using foreign currency to purchase securities? If you dispose foreign currency to purchase a security you will realize capital gain on the disposition of the foreign currency.

  157. David

    Firstly, many thanks for this awesome blog. Question/scenario below:

    I convert $1000 CAD to USD at $1.40 (now have $714.29 USD) in the US side of my Canadian brokerage account
    I buy 1 share of FB for $500 US when USD/CAD is at $1.39
    The FB share increases in value … I sell it at $550 US (when USD/CAD is at $1.25)
    I end this process with $764.29 USD in my account (valued at $955 CAD @1.25)
    I use the entire $764.29 USD to buy a share of GOOGL (USD/CAD @ 1.25)

    My question here is, what are my capital gains/losses on my FX transactions?
    The share part is clear… I made $50 USD on the position, but in in CAD terms, I have a capital loss on the FB share sale of -$8: (bought for $500USD @ 1.39 = $695 CAD; sold for $550 @ 1.25 = $688 CAD)

    When I purchased GOOGL at the end, did I trigger a capital loss on my USD holdings that needs to be separately logged similar to a T5008 transaction?
    How can I book the capital loss on the USD transaction separately without double dipping on the CAD adjusted capital loss on the FB shares?

  158. David Jones

    Do you realize a capital loss if you use foreign currency to purchase a security? e.g. Convert CAD to USD at 1.45, buying US stocks with USD (fx rate now at 1.35) – is that a deemed disposition of USD that would result in a capital loss?

  159. Paul

    Hi,

    Really awesome articles you go there. I have a question about the conversion fees. Some broker takes 2.5% to do the conversion, should those be accounted for in the ACB?

    Thanks,

  160. AdjustedCostBase.ca Post author

    David Jones,

    Yes, you would would be deemed to have disposed of the USD cash when purchasing shares. Note that if you own other USD cash other than that used to purchase the shares, your capital gain or loss would also depend on your other transaction history of USD cash.

  161. AdjustedCostBase.ca Post author

    Paul,

    Yes, currency conversion fees should be factored in when calculating capital gains or losses. They would be added to ACB for deemed purchases of foreign currency and deducted from proceeds of disposition for sales when determining a capital gain or loss.

  162. Paul

    Could you explain me how I would do that with your software ? Do I enter the conversion fee inside commission or is there another way ?

  163. AdjustedCostBase.ca Post author

    Paul,

    Yes, you could input the currency conversion fee as a commission. However, if you only have the value for the net amount (your brokerage does not provide a separate gross amount and conversion fee) then you can use the net amount as the amount and $0 for the commission.

  164. Paul

    Thanks do you offer some kind of consultation service on how to use your software under different scenarios?

  165. AdjustedCostBase.ca Post author

    David,

    Assuming you hold no other US$, FB or GOOGL, and there are no commissions, you would incur the following capital gains/losses:

    – Capital loss of $5 on US$ from deemed disposition to purchase FB share ((US$500 x $1.39/US$) – (US$500 x $1.40/US$)). The ACB of the remaining US$214.29 is $300.01 (US$214.29 x $1.40/US$). The ACB of the FB share becomes $695 (US$500 x $1.39/US$).

    – Capital loss of $7.50 on FB ((US$550 x $1.25/US$) – (US$500 x $1.39/US$)). The ACB of the US$ increases by $687.50 (US$550 x $1.25) to $987.51 with a balance of US$764.29.

    – Capital loss of $32.15 on US$ from the deemed disposition to purchase GOOGL ((US$764.29 x $1.25/US$) – $987.51). The ACB of GOOGL would become $955.36 (US$$764.29 x $1.25/US$).

  166. AdjustedCostBase.ca Post author

    Paul,

    Please feel free to reach out to us with questions through the “Contact Us” link above.

  167. Jordan

    Hello,

    How do you record multiple BUY and SELL transactions of shares that occur on the same date (for purposes of tracking your USD)? Example:
    – one SELL transaction
    – one SELL transaction
    – one BUY transaction
    – one SELL transaction
    – one BUY transaction
    – one BUY transaction
    – one SELL transaction
    – one SELL transaction
    – one SELL transaction

    My monthly statement lists these transactions by share name in alphabetical order.

    Do I enter the corresponding USD tracking transactions in the same order?

    Thank you.

  168. AdjustedCostBase.ca Post author

    Jordan,

    Although in some cases it may not have any impact, it is probably best to input the transactions based on chronological order, taking into account the order when they actually occurred. If you don’t have this information then I would suggest ordering the purchases before the sales, to avoid incorrect calculations that could result from having a negative balance at any point throughout the day. Further information about reordering transactions on AdjustedCostBase.ca is available here:

    https://www.adjustedcostbase.ca/blog/order-of-transactions-for-calculating-adjusted-cost-base/

  169. Linda

    Thank you for your information, very helpful.
    I have a question about the exchange rate.
    The CRA has stated the following:

    “Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate.”

    Actually the transaction date is not the true settlement date, normally transaction date+ 2 working day = settlement date.
    Thus which date to use?
    Some Brokers can automatically calculate all the transaction profit, do you think these brokers consider the exchange rate issue also?
    Hope to have your opinion soon. Thanks.

  170. AdjustedCostBase.ca Post author

    Linda,

    The only documentation I know about on this subject can be found here:

    https://taxinterpretations.com/cra/severed-letters/2015-0588981c6

    “Should the exchange rate in effect on the transaction date or the settlement date be used in respect of transactions on capital account carried out on a foreign exchange, such as the New York Stock Exchange?

    Thus, in the example of a taxpayer receiving proceeds of disposition of the sale of a security on the New York exchange in an American dollar account, the conversion to Canadian dollars must be made at the noon rate quoted by the Bank of Canada for the settlement date for the transaction.”

    This suggests using the exchange rate on the settlement date. However, I take this roundtable document with a grain of salt. It’s a transcription of a verbal statement made by a single CRA employee at a conference and isn’t even published on the CRA’s web site nor is it officially available in English. In any case, I would suggest choosing one method and sticking with it.

    In cases where an actual currency exchange occurs, such as where the proceeds of disposition are directly converted into Canadian dollars, I would suggest using the actual exchange rate. This will ensure the currency spread that you pay will be accounted for to reduce your capital gains taxes.

    Foreign currency conversion is a common way in which brokerages can make mistakes when reporting ACB or capital gains.

  171. Linda

    What I want to say is that some brokers do not calculate CAD ACB for an investor’s USD account. They only consider USD cost base and USD capital gain or loss. They issue T5008 slip only include USD capital gain/loss from stock sale. For your above example:

    “– Capital loss of $7.50 on FB ((US$550 x $1.25/US$) – (US$500 x $1.39/US$)). ” If we only consider USD, the Capital Gain on FB would be (US$550-US$500)*1.25/US$=CAD62.5。That figure would be on T5008 from the broker. Could I modify this figure to 7.5 Capital Loss on the slip? Or I should use other CRA forms to report? Simply put, where to report the Foreign exchange capital loss during the period of holding FB?

    Actually, there is a method called “Foreign currency reporting” (check the following website to find the information) which allow the brokers to report only in USD.
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4091/t5008-guide-return-securities-transactions.html

    Suppose if there is a broker which can track all the transactions in a USD account since the date we transfer USD fund into that account(on that day the ACB=0), then we could use the fund’s transfer date as the USD disposition date. In this way, all the job could be much more easy for us. I just wonder whether there are brokers which have already done this.

  172. Linda

    Thank you for your detailed reply about the settlement date. Very helpful.
    I would like to give an example to make my above question clearer:

    Suppose at the very beginning, I have CAD12,000 and convert it into USD10,000 at exchange rate 1.2, then one month later I use USD4,000 to purchase a stock when the exchange rate is 1.1, then 15 days later I sell the stock and get USD3,000( stock capital loss USD1,000) when the exchange rate is 1.05.
    Using the ACB method, we have the following calculation and report:
    1.Capital Loss for selling USD cash(when purchasing stock): USD4000*1.1-USD4000*1.2=-CAD400

    2.USD cash ACB after purchasing stock: CAD12000-USD4000/USD10000*CAD12000=CAD7200

    3.Capital loss for Selling stock: USD3000*1.05-USD4000*1.1=-CAD935, we could rewrite it as: (USD4000-USD1000)*1.05-USD4000*1.1=USD 4000*(1.05-1.1)-USD 1000*1.05, in this way we could find out the capital loss actually including both the loss of stock price change and holding the stock in USD. For some brokerage they use USD as the reporting currency, so only the stock loss USD1000*1.05 is included on the tax slip. For other broderage using CAD as the reporting currency, they might include the USD funding change during the stock holding period, USD4000*(1.05-1.1). ​

    4.USD cash ACB after selling stock: CAD 7200+USD3000*1.05=CAD10350, we could rewrite it as: CAD7200+(USD4000-USD1000)*1.05=CAD7200+USD4000*1.05-USD1000*1.05

    From the above calculation, the change of the exchange rate is 1.2 to 1.1 to 1.05, we track the USD4000 funding of purchasing and selling stock. we claim loss before purchasing stock USD4000*1.1-USD4000*1.2=-CAD400, we also claim loss when selling stock USD4000*(1.05-1.1)=-CAD200, finanlly we could find out that we actually did one thing: we claimed USD cash capital loss -CAD600 and we minus the ACB for equivalent amout CAD600 (for simplicity, we could suppose stock capital loss of USD1000 is zero first, then the end ACB is CAD7200+USD4000*1.05=CAD11400, CAD600 less than the original CAD12000)
    My idea is that there is no need to change ACB frequently when buying and selling USD securities. Especially if the superficial loss rule applies to the USD Cash, the whole calculation would be very complicated, making it even worse for the daily trading people. I guess that is why some brokerages only calculate USD cost base and report USD capital gain or loss.
    Why I put forward this idea, because there is an extreme case as follows:
    Suppose at the very begining, I have CAD12,000 and convert it in USD10,000 at exchange rate1.2, I use USD9,000 to do a 5 year deposit immediately. Three months later I use USD1000 to buy USD stock when the exchange rate is 1.1, then I do 100 times buying and selling stock for USD10000 with no stock gain and loss, meantime the exchange rate is also unchanged at 1.1. The relevant calculation would be as:
    1. Capital Loss before buying the first stock: USD1000*(1.1-1.2)=-CAD100
    2. ACB after purchasing the first stock: CAD12000-USD1000/USD10000*CAD12000=CAD10,800
    3. no capital loss for selling the first stock
    4. USD cash ACB after selling the first stock: CAD10800+USD1000*1.1=CAD11900
    …again buy and sell the second stock for USD1000,
    1. Capital Loss before buying the first stock: USD1000*(1.1-1.2)=-CAD100
    2. ACB after purchasing the first stock: CAD11900-USD1000/USD10000*CAD119000=CAD10,710
    3. no capital loss for selling the first stock
    4. USD cash ACB after selling the first stock: CAD10710+USD1000*1.1=CAD11810
    then we do the third, fourth….after 7 times you would find out you could claim over CAD500 capital loss, then after 100 times, you could claim almost all CAD1000, then the total ACB turns out to be CAD11000.
    Theoretically, we can use only USD1000 to claim all currency capital loss CAD1000(CAD11000-CAD12000=CAD1000)within just one day, without converting the main principal deposit USD9000. The above case is for currency depreciation, if there is appreciation, CAD1000 should be the capital gain.
    From my point of view, this method is unfair. Since claim loss means deduct ACB for the same amount and pay capital gain means add the ACB, we could only adjust the ACB when there is any USD stock profit or loss. For example, If there is USD100 profit, we could use the current exchange rate*100 then add to ACB. If there is USD100 loss, we could claim currency capital loss based on the original ACB. No matter which method to use, the result will be the same if people finally convert all the USD into CAD.
    I believe a large part of people who frequently buy and sell US stocks use the simple method to only calculate USD stock gain or loss for each. Once they convert funds from USD to CAD, they just use the original buying rate(they record as the ACB) to calculate the currency gain or loss.
    Actually, if the brokerage only provide the USD tax slip, it would be awkward to amend the ACB if there is a huge difference from the real ACB. Actually there would be two components to adjust: first, the currency capital gain or loss before purchasing the stock, second, the currency capital gain or loss during the holding period of the stock. This work would be a little complicated for the average people.

  173. Linda

    For my last second paragraph,
    “I believe a large part of people who frequently buy and sell US stocks use the simple method to only calculate USD stock gain or loss for each. Once they convert funds from USD to CAD, they just use the original buying rate(they record as the ACB) to calculate the currency gain or loss.”

    I want to make a comment, the correct calculating way is not to use the original buying rate, but to adjust ACB each time when selling a stock if there is any stock profit or loss. Use the adjusted ACB as the final conversion calculation.

  174. AdjustedCostBase.ca Post author

    Linda,

    I wouldn’t suggest relying on your T5008 slips for reporting your capital gains. They are often incomplete or inaccurate, especially in cases where shares are denominated in a foreign currency. There are many reasons for this:

    https://www.adjustedcostbase.ca/blog/can-you-rely-on-your-brokerage-for-calculating-adjusted-cost-base-and-capital-gains/

    Also, your brokerage will not calculate capital gains on foreign currency cash for you.

    If a T5008 specifies a book value and proceeds of dispositions in US dollars, then you will not end up with a correct result if you calculate the difference between those two values and multiply by the exchange rate at the time of the sale. The exchanges rates at the time of the sale as well as the purchase(s) need to be factored in. If you only made a single purchase, then the book value could be multiplied by the exchange rate at the time of the purchase and the proceeds can be multiplied by the rate at the time of the sale (assuming that everything is otherwise accurate). If there were multiple purchases then the calculations are more complex.

    Capital gains or losses from both shares and foreign currency cash should be reported on Schedule 3 of your tax return.

    In your above example, the capital loss of the FB shares is indeed:

    US$3000*(CAD$1.05/US$) – US$4,000*(CAD$1.10/US$)

    but this is equal to a capital loss of $1,250, not $935.

    You won’t end up with the correct result by multiplying US$1,000 by a single exchange rate.

    If you are frequently buying and selling US$ then the superficial loss rule may apply to capital losses:

    https://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/

  175. zephyr

    hello acb.ca,

    Many thanks for all your help. In a previous comment you say: “currency conversion fees should be factored in when calculating capital gains or losses. They would be added to ACB for deemed purchases of foreign currency and deducted from proceeds of disposition for sales when determining a capital gain or loss.”

    Which all makes sense when it is specifically tied to a percentage fee and/or can be applied with unfavorable spreads. Can remittance fees also be factored in on both sides of the transaction? Let’s say an international remittance fee of $10 charged by both the sending and the receiving banks. E.g. a Canadian bank exchanges CAD100 to USD100 using their internal rate (assuming a 1:1 rate for simplicity) and charges CAD10 to wire this in one process (never storing USD in my account) to a US Bank which receives the USD100 and charges a USD10 fee to receive. Can these remittance fees be added to the ACB, or is it only during the conversion that the fees can be added to the ACB? Or would it be considered separate as just a wire transfer fee for moving money and not tied to the actual conversion?

    thanks!

  176. RNE

    “This results in a deemed disposition of the U.S. dollars even though no conversion to Canadian dollars took place.”

    If I have a USD denominated account in Canada (or anywhere for that matter) and a USD denominated account in the USA (or anywhere for that matter) and transfer USD between those accounts is that considered a deemed disposition or is it simply an in-kind transfer that has no capital gains consequences and calculations of forex can be ignored for ACB adjustment purposes?

    Basically, is a transfer of the same foreign currency between accounts no matter where they are located considered a deemed disposition and have to take into account the CAD:Foreign rate? I often use wise/transferwise and move USD in and out from this USD denominated account to another USD denominated bank account and am confused on whether to just consider that part of the pooled USD currency or account for a deemed disposition taking into account current CAD:USD rates. thank you for your help

  177. AdjustedCostBase.ca Post author

    RNE,

    Your ACB of USD currency should be tracked jointly across all of your personal non-registered accounts. Transferring USD from one such account to another does not result in any deemed disposition if no currency conversion takes place.

  178. Roth

    Does anyone have an example of how to correctly fill out foreign currency capital gains on Schedule 3 under section 5? I’ve read through these CRA links:

    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/bonds-debentures-promissory-notes-other-similar-properties/foreign-currencies.html

    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/bonds-debentures-promissory-notes-other-similar-properties.html

    but I’m not sure how to fill out the form. It seems like it would be a lot of transactions if each time a foreign currency is exchanged and/or spent would result in some kind of reportable capital gain/loss. Any help would be appreciated

  179. Ron Martin

    I suggest you keep detailed info on all the individual transactions (ie. calculating the gains and losses each time and on a cumulative basis) during the yr and input only the total for everything on the Sched 3, including a notation ~ “As per detailed schedule”.
    That’s worked for me, even when I file electronically and the detail is not filed with the original tax return. You can submit the detail at a later date if requested by CRA.

  180. Roth

    Thank you, Ron Martin, for your suggestion. I was not sure whether to file the detailed list of transactions along with the return, but I will do as you suggest and just put the total for everything with a line/note about non-exempt forex and a detailed schedule. cheers for sharing your personal experience, that makes me a lot more confident in the suggested method!

  181. Tony

    I recently started spot currency trading and I have a few questions on how to go about determining ACB and capital gains/losses. I remember reading on CRA website, Forex trades could be on income account or capital gains account when it comes to reporting. In my case, it should be on capital gains account since I don’t foresee myself making too many spot currency trades and I have a full-time job. If I am not mistaken, each currency for the pair I trade would have to be accounted for separately.

    From what I understand, if I long 10k, for example, EURUSD, I’d essentially be buying 10k EUR from borrowing (shorting) the equivalent amount in USD. Assuming the base currency of my account is CAD and I have a zero balance for those two currencies. For the EUR side, ACB and capital gain/loss calculations seem straightforward since it’s just like buying a security. For the USD side, how do I determine those? When I input a sell (borrow/short) for 10k EUR worth of USD in my portfolio on the website, no ACB shows up. Then, when I add a buy entry for the cover of the USD short portion, no capital gain/loss shows up, just the remaining “share balance”. Is there a different formula for ACD for borrowing a currency?

    For currency pairs with CAD in it, like CADJPY, would ACB and capital gains/losses simply a conversion of the foreign currency amount into CAD?

    Also, if I have a -10k balance in AUD from a previous loss and now I want to long 20k AUDNZD, would there be a capital gain/loss from the closing of the -10k AUD position from the 20k I am now buying? And would ACB be calculated on the remaining 10k AUD?

    I’m sorry I have a lot of questions. I just can’t seem to wrap my head around this. Thank you very much in advance!

  182. Guillaume Champoux

    Hi,

    I am trying to find out how to Calculate Adjusted Cost Base for Foreign Currency Cash when there are “Short sell” and “cover short” operations.

    As an example, if I do a “Short Sell” of 1000 shares of YHOO for USD$80.00 per share with a commission of USD$9.99 and an exchange rate of CAD$1=USD$0.8, funded directly from your U.S. dollar account, then a “Cover Short” of 1000 shares of YHOO for USD$77.00 per share with a commission of USD$9.99 and an exchange rate of CAD$1=USD$0.8, then I convert back the gain from US$ to CAD$ at an exchange rate of CAD$1=USD$0.75

    I am not sure how to use this website to calculate the Adjusted Base Cost on the YHOO share as well as the Adjusted Base Cost on the foreign currency.

  183. AdjustedCostBase.ca Post author

    Guillaume,

    There is some discussion about purchases on margin in foreign currency here:

    https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-with-foreign-currency-transactions/

    However, please note that AdjustedCostBase.ca only supports calculating gains and losses on capital account and not on income account. Note that normally the CRA requires all short sales to be reported on income account rather than capital account. The only exception is if you have made election 39(4) by completing form T123. In this case, short sales can be reported on capital account, however, the formulas for calculating ACB are incompatible with short sales. If your share balance on AdjustedCostBase.ca ever falls below zero, you will see a warning message and the reported capital gains will not be correct.

Leave a Reply

Your email address will not be published. Required fields are marked *