The Canada Revenue Agency requires capital gains or losses and adjusted cost base for securities to be reported in Canadian dollars when the transactions are on capital account. This means that when calculating ACB, all amounts should be converted into Canadian dollars. This occurs even if you use a cash balance in foreign currency to purchase a security (as opposed to converting Canadian dollars to make the purchase) or leave the proceeds from the sale of a security in foreign currency (as opposed to converting the proceeds into Canadian dollars).
As an example, starting from a zero share balance, consider the purchase of 100 shares of MSFT for USD$40.00 per share with a commission of USD$9.99 when the exchange rate is CAD$1 = USD$0.9192. To calculate the ACB, the amount of the transaction needs to be converted to Canadian dollars. Therefore, the initial ACB becomes:
((100 shares x USD$40.00/share) + USD$9.99) / (0.9192 USD$/CAD$) = CAD$4,362.48 (or CAD$43.62 per share)
Note that when calculating ACB, the commission should also be converted to Canadian dollars. If the commission is paid in Canadian dollars it does not need to be divided by the conversion rate.
Future buy or sell transactions should be calculated using the future exchange rate. For example, suppose that in the following year 40 shares of MSFT are sold at a price of USD$50.00 per share with a commission of USD$9.99 and an exchange rate of CAD$1 = USD$1.0344. The sale results in a decrease in ACB equal to:
((40 shares) x (USD$50.00/share) — USD$9.99) / (1.0344 USD$/CAD$) = CAD$1,923.83
This results in a capital gain equal to:
CAD$1,923.83 — (CAD$4,362.48 x (40 shares/100 shares)) = $178,84
The new ACB is therefore:
CAD$4,362.48 — (CAD$4,362.48 x (40 shares/100 shares)) = CAD$2,617.49 (or CAD$43.62 per share)
All values must be converted into Canadian dollars, even if you’re using a foreign currency cash balance to make a purchase and even if you do not convert the proceeds from a sale into Canadian dollars.
The CRA permits you to use the exchange rate from the day of the transaction date, or the average annual exchange rate if multiple transactions occurred over the course of a year. If a currency exchange was involved in the transaction, you may use the actual exchange rate you received.
The Bank of Canada provides the following resource that you can use to find the exchange rate on the date of a transaction:
The Bank of Canada also provides average annual exchange rate data:
In the case where a cash balance in a foreign currency is used to purchase shares in the same currency, the cash is deemed to be sold and converted into Canadian dollars at the time of the transaction. This may result in a capital gain or loss as a result of selling the foreign currency (see Calculating Adjusted Cost Base for Cash in Foreign Currency).
AdjustedCostBase.ca supports calculations for foreign currency for buy and sell transactions. The following illustrates how the above example can be inputted. The initial purchase of 100 shares of MSFT for USD$40.00/share with a USD$9.99 commission and a CAD$1 = USD$0.9192 exchange rate is entered as follows:
The “Price in Foreign Currency?” checkbox is checked, as well as “In foreign currency” because both the stock and the commission were priced in U.S. dollars.
The exchange rate needs to be inputted as the value of one Canadian dollar in the foreign currency. It is important not to use the inverse of this value. If your exchange rate is provided as the value in Canadian dollars for one unit of foreign currency, the value must be inverted. For example, the following is taken from Yahoo Finance showing the exchange rate as USD/CAD (instead of CAD/USD):
In this case it shows USD$1=CAD$1.0892. This needs to be converted to the proper format: CAD$1 = 1/1.0892 = USD$0.9181.
Next we enter the sale of 40 shares for USD$50.00/share with an exchange rate of CAD$1 = USD$1.0344 and a commission of USD$9.99:
Once again the “Price in Foreign Currency?” checkbox is checked, as well as “In foreign currency” because both the stock and the commission were priced in U.S. dollars. The transactions are shown below:
All the amounts are shown after they’re converted to Canadian dollars. The ACB balances and capital gain match the calculated values in the example above.