Now that the Canadian dollar has fallen in value against the US dollar, many Canadian investors with US holdings are wondering how to recognize these gains for tax reporting purposes. For investments inside registered accounts such as RSPs, RIFs, RESPs, TFSAs, RDSPs, capital gains are tax free while the funds remain inside the registered accounts. For investors with US holdings in non-registered accounts, gains in foreign exchange need to be recorded and reported as recognized.
If an investor buys shares in IBM at $100 USD per share when the exchange rate is CAD/USD 1.0000, then the cost base is $100 CAD. If the investor sells those shares for $100 USD per share when the exchange rate is CAD/USD 0.7000, then the investor’s proceeds are $143 CAD, and the capital gain that should be reported to CRA is $43 even though the value of the shares remained the same, the currency gains impact the Canadian dollar value of the proceeds. CRA says, “Report your gains or losses in Canadian dollars. Use the exchange rate that was in effect on the day of the transaction” to determine your capital gain or loss.
I frequently see Canadian investors with US securities fail to record the exchange rate on the day of a US dollar investment. This can cause administrative time to be wasted especially at tax season when it comes time to report a capital gain or loss. This is especially true if the securities are disposed of many years following their initial purchase. If you fail to record the cost base in Canadian dollars at the time the securities were purchased, you (or your admin) will be forced to hunt down the specific date of the initial transaction to determine an accurate cost base. Statements from your broker will list the cost base in US dollars, but you’ll need the Canadian dollar value. Once again, good record keeping is a stress saver.
I just read your February 2015 article in the Globe and Mail with some interest . I purchased some U.S. stocks in 2012 when the Canadian dollar was at par or better than the U.S. dollar. These stocks were held in an RRSP account. I decided to sell the U.S.