{"id":93,"date":"2014-05-07T19:08:07","date_gmt":"2014-05-07T23:08:07","guid":{"rendered":"http:\/\/www.adjustedcostbase.ca\/blog\/?p=93"},"modified":"2020-01-06T12:16:50","modified_gmt":"2020-01-06T17:16:50","slug":"calculating-adjusted-cost-base-for-foreign-currency-cash","status":"publish","type":"post","link":"https:\/\/www.adjustedcostbase.ca\/blog\/calculating-adjusted-cost-base-for-foreign-currency-cash\/","title":{"rendered":"Calculating Adjusted Cost Base for Foreign Currency Cash"},"content":{"rendered":"

The Canada Revenue Agency requires taxpayers to report capital gains on foreign currency when the transactions are on capital account.\u00a0 Adjusted cost base must be calculated in Canadian dollars in a similar fashion to securities.\u00a0 When you convert Canadian dollars into a foreign currency, the adjusted cost base is established in Canadian dollars.\u00a0 When the funds are later converted back into Canadian dollars, a capital gain or loss will be realized if the exchange rate has fluctuated.<\/p>\n

A capital gain or loss is also realized\u00a0 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.\u00a0 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.<\/p>\n

Special attention must be made when holding foreign currency in a foreign currency bank account or brokerage account.\u00a0 A conversion of Canadian dollars into a foreign currency will increase the ACB of the foreign funds by the value in Canadian dollars.\u00a0 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.\u00a0 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).<\/p>\n

If you hold a foreign currency in multiple accounts, do not calculate ACB separately for each account.\u00a0 ACB must be jointly since the same currency is considered an identical security (see Tracking Adjusted Cost Base with Multiple Brokerage Accounts<\/a>).<\/p>\n

The CRA provides a $200 exclusion on foreign exchange gains<\/a>.\u00a0 If the gain on foreign currency is less than $200 for the year, you do not need to report it.\u00a0 Also, any loss less than $200 cannot be claimed.\u00a0 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.\u00a0 But when gains exceed $200 the calculations can become quite cumbersome.<\/p>\n

For example, suppose you convert CAD$100,000 into U.S. dollars with an exchange rate of CAD$1=USD$0.9192.\u00a0 The U.S. cash balance becomes:<\/p>\n

  CAD$100,000 x USD$0.9192\/CAD$\r\n= USD$91,920<\/pre>\n
Since ACB is tracked in Canadian dollars, the initial ACB is simply CAD$100,000.<\/p>\n
Next, suppose the funds earn interest of USD$80 when the exchange rate is CAD$1=USD$0.9304.\u00a0 The interest would be immediately taxable in the current tax year.\u00a0 The ACB of the U.S. dollars increases by USD$80 converted into Canadian dollars.\u00a0 The ACB increases to:<\/p>\n
  CAD$100,000 + (USD$80.00 \/ USD$0.9304\/CAD$)\r\n= CAD$100,000 + CAD$85.98\r\n= CAD$100,085.98<\/pre>\n
The account balance is now USD$92,000.<\/p>\n
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.\u00a0 This results in a deemed disposition of the U.S. dollars even though no conversion to Canadian dollars took place.\u00a0 The proceeds in Canadian dollars are:<\/p>\n
  USD$1,200 \/ (USD$0.9023\/CAD$)\r\n= CAD$1,329.93<\/pre>\n
A capital gain has occurred and must be reported on your tax return.\u00a0 The capital gain is equal to:<\/p>\n
  CAD$1,329.93 \u2014 (CAD$100,085.98 x (USD$1,200.00 \/ USD$92,000.00))\r\n= CAD$1,329.93 \u2014 CAD$1,305.47\r\n= CAD$24.46<\/pre>\n
The new ACB is:<\/p>\n
  CAD$100,085.98 \u2014 (CAD$100,085.98 x (USD$1,200.00 \/ USD$92,000.00))\r\n= CAD$100,085.98 \u2014 CAD$1,305.47\r\n= CAD$98,780.51<\/pre>\n
and the U.S. cash balance is USD$90,800.<\/p>\n
Next, you convert USD$1,000 into Euros when the exchange rates are CAD$1=USD$0.9409 and USD$1=EUR\u20ac0.7234 (and therefore CAD$1=EUR\u20ac0.6806).\u00a0 The U.S. cash balance is now USD$89,800 (USD$90,800 \u2014 USD$1,000).\u00a0 The USD$1,000 is deemed to have been sold so this results in the following capital gain:<\/p>\n
  (USD$1,000.00 \/ (USD$0.9409 \/ CAD$)) \u2014 (CAD$98,780.51 x (USD$1,000.00 \/ USD$90,800.00))\r\n= CAD$1,062.81 \u2014 CAD$1,087.89\r\n= \u2014CAD$25.08<\/pre>\n
The capital loss of CAD$25.08 can be applied to offset capital gains.\u00a0 The new ACB for the U.S. dollars becomes:<\/p>\n
  CAD$98,780.51 \u2014 (CAD$98,780.51 x (USD$1,000.00 \/ USD$90,800.00))\r\n= CAD$98,780.51 \u2014 CAD$1,087.89\r\n= CAD$97,692.62<\/pre>\n
Assuming that you don’t spend the Euros immediately, you must now track the ACB for this new holding.\u00a0 The initial Euro cash balance is:<\/p>\n
  USD$1,000.00 x (EUR\u20ac0.7234\/USD$)\r\n= EUR\u20ac723.40<\/pre>\n
The initial ACB for the Euros becomes:<\/p>\n
  EUR\u20ac723.40\u00a0\/ (EUR\u20ac0.6806\/CAD$)\r\n= CAD$1,062.89<\/pre>\n
The ACB for Euros must now be tracked separately.<\/p>\n
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<\/a>).\u00a0 This results in a deemed disposition of U.S. dollars in the amount of:<\/p>\n
  (100 shares x USD$80.00\/share) + USD$9.99\r\n= USD$8,009.99<\/pre>\n
This results in the following capital gain:<\/p>\n
  (USD$8,009.99 \/ USD$0.8941\/CAD$) \u2014 (CAD$97,692.62 x (USD$8,009.99 \/ USD$89,800.00))\r\n= CAD$8,958.72 \u2014 CAD$8,714.00\r\n= CAD$244.72<\/pre>\n
The ACB of the U.S. dollar is now:<\/p>\n
  CAD$97,692.62 \u2014 (CAD$97,692.62 x (USD$8,009.99 \/ USD$89,800.00))\r\n= CAD$97,692.62 \u2014 CAD$8,714.00\r\n= CAD$88,978.62<\/pre>\n
And the U.S. cash balance becomes:<\/p>\n
  USD$89,800.00 \u2014 USD$8,009.99\r\n= USD$81,790.01<\/pre>\n
Finally, the ACB of YHOO must also be calculated in Canadian dollars:<\/p>\n
  USD$8,009.99 \/ (USD$0.8941\/CAD$)\r\n= CAD$8,958.72<\/pre>\n
AdjustedCostBase.ca<\/a> can be used for calculating ACB and capital gains on foreign currency balances.\u00a0 To do so, create a new security for each foreign currency as follows:<\/p>\n
\"New<\/a><\/p>\n
Each transaction can be inputted as a buy or sell transaction for U.S. dollars.\u00a0 Here is the first transaction from the example above:<\/p>\n
\"Transaction<\/a><\/p>\n
This is a buy transaction because U.S. dollars are being purchased.\u00a0 The price can be entered as $1.00 indicating that each unit (or “share”) is equivalent to USD$1.00.\u00a0 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.\u00a0 The “Price in Foreign Currency” checkbox is checked, and the exchange rate is entered.\u00a0 This results in the following transaction:<\/p>\n
\"Initial<\/a><\/p>\n
Note that the ACB is CAD$100,000 as expected.\u00a0 All values in the transaction list are shown in Canadian dollars.\u00a0 The remaining transactions can be entered in a similar fashion.\u00a0 For the purchase of Euros two transactions must be inputted: a sell transaction for U.S. dollars and a buy transaction for Euros.\u00a0 Similarly, for the purchase of YHOO you must enter two transactions: a sell transaction for U.S. dollars and a buy transaction for YHOO.<\/p>\n
Below are the list of transactions for the entire example:<\/p>\n
\"List<\/a><\/p>\n
\"List<\/a><\/p>\n
\"List<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"
The Canada Revenue Agency requires taxpayers to report capital gains on foreign currency when the transactions are on capital account.\u00a0 Adjusted cost base must be calculated in Canadian dollars in a similar fashion to securities.\u00a0 When you convert Canadian dollars into a foreign currency, the adjusted cost base is established in Canadian dollars.\u00a0 When the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-93","post","type-post","status-publish","format-standard","hentry","category-advanced-acb-topics"],"_links":{"self":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/93","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/comments?post=93"}],"version-history":[{"count":34,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/93\/revisions"}],"predecessor-version":[{"id":1313,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/93\/revisions\/1313"}],"wp:attachment":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/media?parent=93"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/categories?post=93"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/tags?post=93"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}