capital gains taxes on currency exchange/selling stocks

[joel]

i have a couple of financial questions for all you accountants and general financial gurus out there.

the situation right now is i have a stock purchase plan with my company in which i get a 15% discount on the purchase. so my cdn income is used to purchase US traded stocks based on current exchange rates.

Now if I were to sell the stock, I assume that I'd get a cheque in USD which i can deposit into a USD account. And I would have to declare the profit I made off the stock as capital gains right?

Now if at a later date I were to buy CDN with those US funds when the exchange rate is more favorable, would I also need to declare profit I made from purchasing of CDN dollars... This is really confusing and I am not sure how exchange rates factor into how much I would declare for my capital gains.

Maybe some of you already have experience with this and knows how it works?

[jeSteR]

Your best bet is to set up a USD account with your CAD bank. That way, (after filing a W-8BEN form, so you don't get dinged by the US IRS) you only need to declare the captial gain to revenue Canada in the year that you sell. Once the US dollars reside in a Canadian bank, it's your money and you will no longer need to declare a gain or loss on the transaction.

Unless of course, you're talking like $500K and up.... then a new set of rules kick in.

[joel]

cool thanks.

[se7entse7en]

I have a friend who was always kinda unclear what to do with this sort of thing. I don't know if it's correct or not, but all $US that they earn gets claimed under the year that they earned it. The $CND that they claim is based on:
1) exchanges made throughout the year. If they exchange 100 USD and get 150 CND, then they claim 150 CND.
2) For the remainder of the USD that they earned but had not exchanged, they use the average exchange rate for that year (taken from the revenue Canada website).

Dunno if that's right or wrong, but I think that's what they do.

[Wetundies]

JT is gonna be an accountant soon, he should know. I just know i don't recall getting taxed on my exchanges.

[[JT]]

lol. i sure as hell dont want to go into tax when i become an accountant! they put in the most hours lol

Your situation results in 2 potential capital gains transactions..

The first one is your stock purchase and eventual selling.
The capital gain that you need to pay taxes on is the net of the change in stock price and change in foreign exchange.

So on the day that you purchase your stocks, you translate the USD amount into CDN using that day's foreign exchange rate. That will be the price of your stock in CDN dollars that you paid for them, this does not change.

On the day that you sell them, you translate the USD into CDN, using the foreign exchange rate on the date that you sold them.

The difference between the price you bought your shares at (translated into CDN dollars using FX rate on buying date) and the price that you sell your share at (translated into CDN dollars using FX rate on selling date), is your capital gain that you would have to report that period

[[JT]]

The second part is when you just hold these US funds in your bank account. The difference between the FX rate when you deposit and the FX rate when you withdraw would be your capital gain.

I think there is a certain amount that is tax free for personal use, which is why Fynn never got taxed on it.

It would be really messed up if you took out a bunch of Euros to go on vacation and while you were on vacation the Euro appreciated and you had to pay capital gains when you came back haha