My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, April 4, 2016

Reporting the Capital Gains on Your 2015 U.S. Stock Sales

Last year I wrote a blog post titled Foreign Exchange Translation on Capital Gains and Dividends. The article noted that the Canada Revenue Agency (“CRA”) expects you to use the Bank of Canada noon rate or other acceptable exchange rate in effect at the time of purchase and sale for any capital transaction.

To be clear; this means that when you purchase a stock you must translate it at the date of purchase and again at the date of sale [i.e. if you purchased 50 shares of Johnson & Johnson for $80 when the foreign exchange rate is $1.10, your cost for Canadian purposes is $4,400 (50 x $80 x $1.10)]. If you sold the J&J shares later in the year for $90 and the FX rate was $1.45, your proceeds are $6,525 (50 x $90 x $1.45) and your capital gain to report is $2,125 ($6,525-$4,400).

The trouble is, many financial institutions just provide you capital gains summaries based on your U.S. purchase and sale price. If you then multiply that gain by the average foreign exchange rate for 2015 ($1.2787), your capital gain is wrong.

This is a huge issue for 2015, where the U.S. dollar strengthened significantly against the Canadian dollar. You really need to go back and translate your purchases and sales at the FX rate in effect at that time. The same holds for sales of U.S. real estate or any other U.S. capital property.

The above was recently re-enforced when a client of mine advised me of the following:

My client informed me that a certain financial institution was very proud of themselves this year for coming up with a new Realized Capital Gain report and had sent him an email to tell them how wonderful they are.

However, he noted the trouble was they were only reporting capital gains in the original currency, USD.

My client said, “I would bet that many taxpayers are just taking that USD number and converting it to Canadian at the sale date and calling that the gain. Given the big drop in the CAD$ in recent years, they are, of course, under-reporting grossly. There is no warning on the report, not to do this”. He suggested I write another blog post on this topic and hence, today's topic.

When he calculated his capital gain using the rates in effect at the time of purchase and sale, he emailed me to tell me the gain was $35,000 higher than if he had just taken the U.S. gains on the report and used the CRA's average rate for 2015.

It is very important to ensure you translate your capital gains at the actual purchase and sale prices in 2015, or you may be severely under reporting your capital gains.

Bloggers Note: I have disabled the ability to comment on this or any prior blog post. I apologize, but I am too busy during tax season to answer the various questions and comments I receive. 

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

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