Last week I received an avalanche of tax returns, as my clients finally received their T3 and T5013 tax slips (although many are now being amended). Driving to work to prepare all these returns was problematic, as the weather in Toronto was terrible. While snow in April is not what you hope for, the upside for an accountant is; my friends cannot call me on each hole of the golf course to torment me while I am working away doing tax returns. But I digress.
While preparing returns last week, I only found one noteworthy issue to discuss; that being the tracking of the adjusted cost base of U.S. stocks and securities. This issue rears its ugly head when filing terminal tax returns (the final return in the year of death) and for anyone who sells U.S. stocks and receives a capital gain/loss report solely in U.S. dollars.
For example. Say a client purchased IBM at $40 in their U.S. portfolio years ago when the exchange rate was say $1.05. The converted Canadian cost base is $42 ($40x1.05). Let’s assume the stock price upon the date of their death was $150. If the exchange rate on death is $1.30, the deemed proceeds are $195, and the capital gain should be $153 ($195-42).
However, in two cases where I had a client pass away, all I was provided with from the investment manager/institution was a U.S. cost base of $40 and a U.S. fair market value of $150. If I just convert both the $40 cost and $150 value at death at say $1.30, this would result in a capital gain of $143 instead of the correct $153. Where the U.S. stocks have been purchased with the current advisor, typically they can at least provide me with the purchase dates and sometimes they can run a new report with the converted $Cdn ACB. Where stocks were initially purchased by the client on their own or with another advisor, it is almost impossible to get the original purchase date unless the executor can find the original purchase documents.
The standard reasoning provided by reporting entities for not having this information is that the stocks were transferred to them and they don’t have the historical cost. I can live with that explanation, but query why when U.S. stocks are purchased by the manager or institution, they do not in many cases automatically track and convert to a $Cdn ACB? Another of life’s little tax mysteries.
Often I must play detective and try to somehow determine when these stocks were purchased which is either extremely time consuming or not possible given the lack of records.
Many of you may have this same issue if you have a U.S. stock portfolio with an investment advisor or financial institution and your yearly realized report is provided only in U.S. dollars. How do you know what your adjusted $Cdn cost base is? I suggest that in order to alleviate this problem, you ask your advisor to provide you on an annual basis with the $Cdn adjusted cost base of your U.S. stocks whether they have to push a button or have their assistant do it on a spreadsheet. You pay for this. If you are a DIY investor, you should ensure you note the foreign exchange date down for every U.S. or foreign stock purchase.
Long story short, this a significant reporting issue while you are alive and after you pass away.
Note: I am sorry, but I do not answer questions in late April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on.
This is my last post (although I may post a guest blog) for a couple weeks, so see you in May.
While preparing returns last week, I only found one noteworthy issue to discuss; that being the tracking of the adjusted cost base of U.S. stocks and securities. This issue rears its ugly head when filing terminal tax returns (the final return in the year of death) and for anyone who sells U.S. stocks and receives a capital gain/loss report solely in U.S. dollars.
What is the Adjusted Cost Basis of Your U.S. Securities? Your Guess is as Good as Mine
Unfortunately, over the past 15 months or so, I had a couple clients pass away. As discussed in this blog post, when you die, there is a deemed disposition of the capital property you own on death (unless you have a surviving spouse to whom you transfer your property under your will, although you can elect out of this provision on a security by security basis). My issue has been obtaining the historical purchase dates of the U.S. stocks to determine the deemed disposition gain for these client's U.S. stock holdings.However, in two cases where I had a client pass away, all I was provided with from the investment manager/institution was a U.S. cost base of $40 and a U.S. fair market value of $150. If I just convert both the $40 cost and $150 value at death at say $1.30, this would result in a capital gain of $143 instead of the correct $153. Where the U.S. stocks have been purchased with the current advisor, typically they can at least provide me with the purchase dates and sometimes they can run a new report with the converted $Cdn ACB. Where stocks were initially purchased by the client on their own or with another advisor, it is almost impossible to get the original purchase date unless the executor can find the original purchase documents.
The standard reasoning provided by reporting entities for not having this information is that the stocks were transferred to them and they don’t have the historical cost. I can live with that explanation, but query why when U.S. stocks are purchased by the manager or institution, they do not in many cases automatically track and convert to a $Cdn ACB? Another of life’s little tax mysteries.
Often I must play detective and try to somehow determine when these stocks were purchased which is either extremely time consuming or not possible given the lack of records.
Many of you may have this same issue if you have a U.S. stock portfolio with an investment advisor or financial institution and your yearly realized report is provided only in U.S. dollars. How do you know what your adjusted $Cdn cost base is? I suggest that in order to alleviate this problem, you ask your advisor to provide you on an annual basis with the $Cdn adjusted cost base of your U.S. stocks whether they have to push a button or have their assistant do it on a spreadsheet. You pay for this. If you are a DIY investor, you should ensure you note the foreign exchange date down for every U.S. or foreign stock purchase.
Long story short, this a significant reporting issue while you are alive and after you pass away.
Note: I am sorry, but I do not answer questions in late April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on.
This is my last post (although I may post a guest blog) for a couple weeks, so see you in May.
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