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Scenario 1: Immediate FOREX conversion

➤ On June 1st, I purchased stock ABC with a cost basis of $100,000 USD. The exchange rate on the day of the trade was $130,000 CAD.

➤ On June 10th, I sold stock ABC with a profit of $125,000 USD. The exchange rate on the day of the trade was $170,000 CAD.

I then immediately convert all USD back to CAD at market rate. Consequently, I will need to pay capital gains tax on approximately $40,000 CAD.

Scenario 2: Delayed FOREX conversion (loss of value)

➤ On June 1st, I purchased stock ABC with a cost basis of $100,000 USD. The exchange rate on the day of the trade was $130,000 CAD.

➤ On June 10th, I sold stock ABC with a profit of $125,000 USD. The exchange rate on the day of the trade was $170,000 CAD.

➤ However now, this time I decided not to immediately convert the USD back to CAD and kept it just sitting as cash in my brokerage account.

➤ On June 20th, I converted $125,000 USD to $150,000 CAD.

What happens now? Will I still be taxed on a $40,000 CAD profit? Or does the profit now amount to $20,000 CAD due to forex fluctuations? Could anyone provide guidance on such a scenario?

Scenario 3: Delayed FOREX conversion (gain of value)

➤ On June 1st, I purchased stock ABC with a cost basis of $100,000 USD. The exchange rate on the day of the trade was $130,000 CAD.

➤ On June 10th, I sold stock ABC with a profit of $125,000 USD. The exchange rate on the day of the trade was $170,000 CAD.

➤ However now, this time I decided not to immediately convert the USD back to CAD and kept it just sitting as cash in my brokerage account.

➤ On June 20th, I converted $125,000 USD to $200,000 CAD.

Similarly, what happens when there is a significant gain in FOREX valuation instead of a loss? Do I still only have to pay my original $40,000, or will I have to be taxed on the subsequently larger sum as well?

AlanSTACK
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2 Answers2

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I already answered your question on how trades are taxed here. The forex gains/losses are considered capital gains as well.

I'm not sure why you're struggling with this so much, it's pretty trivial.

In your scenario, once the shares position is liquidated, you end with $170k CAD proceeds. In scenarios 2 and 3 you then invested the CAD in USD, and opened a new position with $125k of USD (or 170K of CAD).

AlanSTACK
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littleadv
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Using this document from the revenue agency Capital Gains – 2022

The basic formula is:

Calculating your capital gain or loss

To calculate any capital gain or loss, you need to know the following three amounts:

  • the proceeds of disposition
  • the adjusted cost base (ACB)
  • the outlays and expenses incurred to sell your property

To calculate your capital gain or loss, subtract the total of your property's ACB, and any outlays and expenses incurred to sell your property, from the proceeds of disposition.

with a note about foreign currency.

Note

When calculating the capital gain or loss on the sale of capital property that was made in a foreign currency:

  • convert the proceeds of disposition to Canadian dollars using the exchange rate in effect at the time of the sale
  • convert the ACB of the property to Canadian dollars using the exchange rate in effect at the time the property was acquired
  • convert the outlays and expenses to Canadian dollars using the exchange rate in effect at the time they were incurred

Looking at your scenarios.

Scenario 1: spend $130,000 CAD, receive $170,000 CAD. The capital gain is $40,000 CAD.

Scenario 2: Spend $130,000 CAD, receive $170,000 CAD. The capital gain is $40,000 CAD. What happens after that would be another transaction.

Scenario 3: Spend $130,000 CAD, receive $170,000 CAD. The capital gain is $40,000 CAD. What happens after that would be another transaction.

mhoran_psprep
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