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Taxation of USD Brokerage Investment Savings Accounts
April 5, 2023
4:54 pm
Fritz23
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How are USD Brokerage Investment Savings Accounts treated from a CRAtax perspective:

1. Like a "normal"savings-account where I do have to report my interest payment in CAD on the date when I got the interest payment. The USD I am moving in and out in my USD savings over the year (staying in USD) don't have to be reproted to the CRA.

or

2. Like a (stock-)transaction where I have to report each transaction including capital and gain/losses in CAD to the CRA. This would that I have to report each sell of units from my USD Brokerage Investment Savings Accounts in CAD even I didn't didn't exchange USD in CAD because I bought some shares in USD.

My "guess" is, because the USD Brokerage Investment Savings Accounts are covered by CDIC they will be treated like a "normal savings-accounts" with the interest payments are the additional units I get at the end of a months.

April 5, 2023
5:13 pm
AltaRed
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USD ISAs are considered deposit accounts just like bank USD savings. They are not capital transactions like money market mutual funds (trusts). There is no acquisition/disposition Schedule 3 cap gains/losses reporting due to forex differences.

April 5, 2023
5:20 pm
Bill
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April 5, 2023
6:31 pm
AltaRed
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No. A capital transaction on foreign currency occurs when the foreign currency is bought (ACB) and then sold at a later date...with the capital gains (or losses) attributable to chances in forex between acquisition date and disposition date. Merely moving USD around between deposit accounts, e.g. from USD savings account in Bank A to USD savings account in Bank B or buying USD ISA in brokerage C does not constitute a capital transaction. One can move USD around between a range of deposit accounts without triggering a 'sale' of USD currency.

However, when that USD currency is 'sold' to buy a USD money market mutual fund, or a USD Cash ETF, or a USD stock, the sale of that USD currency to buy that asset triggers a disposition of USD that must be included on Schedule 3. CRA allows one to not have to declare the first $200 in aggregate annual currency forex gains/losses to avoid nuisance tax reporting. Only the amount of cap gain/loss in excess of $200 per year is reportable on Schedule 3.

Example 1: Move $10k of USD (with a CAD ACB of $13000 from an earlier time) from Tangerine USD savings and buy $10000 of Scotia iTrade USD DYN6001. There is no disposition of USD to buy that ISA and no cap gain/loss because DYN6001 is a deposit account. The ACB of that $10,000 remains $13000CAD.

Example 2: Sell $10k of USD (With a CAD ACB of $13000 from an earlier time) to buy $10k of USD Stock. On the date of sale of that $10k of USD, the exchange rate is now 1.40 or ($14000 CAD). You have incurred a cap gain of $1000 in the sale of that USD to buy USD stock. You need to report $800 (1000-200) as a forex gain on Schedule 3.

April 5, 2023
6:32 pm
Norman1
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The Globe & Mail article does suggest otherwise.

It is otherwise according to the RBC Navigator issue I reference a while ago.

Essentially, there are foreign exchange gains or losses realized when (1) a foreign currency deposit is converted to a deposit of different foreign currency OR (2) the deposit is no longer "on deposit" or in cash.

April 5, 2023
6:50 pm
Bill
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Carrick clearly says "CRA is clear in specifying that currency gains are not taxable when money continues to sit in a U.S.-dollar account. A capital gain is triggered when you convert funds in a foreign currency into Canadian dollars........" So, yes, keeping it in $US is not a forex gain or loss, it's the conversion to $Cdn that triggers forex cap gain or loss, according to the article.

Archived CRA IT-95R suggests the same in a few places, e.g. "5. Sundry dispositions of foreign currency by individuals, such as a conversion of travellers cheques in foreign funds to Canadian dollars on return from a vacation, are considered to be on account of capital........
6. A taxpayer who has transactions in foreign currency or foreign currency futures that do not form part of business operations, or are merely the result of sundry dispositions of foreign currency by an individual, will be accorded by the Department the same treatment as that of a "speculator" in commodity futures........."

April 5, 2023
6:58 pm
AltaRed
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My first example is simply moving USD around between deposit accounts, whether typical USD savings accounts, or USD ISA accounts. The funds remain "on deposit" and why ISAs also issue T5 tax slips, not T3 tax slips. No capital transaction is triggered.

The second example is one where USD is sold to buy an asset in USD (whether a stock, a bond, a money market mutual fund or a Cash ETF). That is a capital transaction. Every brokerage will issue a T5008 on these kinds of transactions.

April 5, 2023
9:01 pm
Bill
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Norman1's RBC Navigator reference reiterates the Carrick article. The last section on Cash indicates what triggers HISA deposits' forex capital gains & losses, which presumably would be of interest to readers on this site who have $US HISAs or GICs.

April 5, 2023
9:05 pm
Norman1
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Conversion of US$ to Canadian dollars is just one trigger.

As AltaRed noted, spending the US$ in a savings account without converting it to another currency is also a trigger. For example, using US$ in a savings account to pay one's property tax on a property in the US can also trigger US$/C$ foreign exchange capital gains/losses.

April 6, 2023
5:23 am
savemoresaveoften
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Norman1 said
Conversion of US$ to Canadian dollars is just one trigger.

As AltaRed noted, spending the US$ in a savings account without converting it to another currency is also a trigger. For example, using US$ in a savings account to pay one's property tax on a property in the US can also trigger US$/C$ foreign exchange capital gains/losses.  

Same with when sell a foreign stock, both the sale and purchase amount are supposed to be converted to Cad$ on transaction date, so both the cost plus any capital gain/loss has a fx component, even when one leaves the proceed in the foreign currency.

April 6, 2023
6:56 pm
Fritz23
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All blogs very interesting, thank you.

@AltaRed, I have two questions:
1. How are you keeping track of the ACB in CAD in a HISA or ISA with 50+ transfers over time?
2. Is there a difference in your #4 Example 2 above, if the USD deposited in a HISA by (a) exchanging CAD in USD or (b) depositing USD without exchanging CAD in USD (e.g. using USD from US rent income)?

April 6, 2023
7:32 pm
AltaRed
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1. It is an absolute brute to keep track if one is constantly selling* or buying** USD. The answer is to minimize USD buy/sell transactions to minimize ACB recordkeeping to perhaps one a year (in my case, less than once a year).
* Sells that trigger ACB adjustments include selling USD to buy a security such as USD stock, a USD money market mutual fund, or to buy CAD, or to buy consumer goods in USD.
** Buys that trigger ACB record keeping include receiving USD as a result of selling a USD security or USD money market fund.

1a. Since I hate record keeping, I generally only move USD between deposit accounts such as between USD HISA savings accounts and USD ISAs that do not result in 'triggers'.

2. Receiving recurring investment income in USD is not the same as a buy/sell capital transaction. For recurring investment income received in USD, CRA allows one to use the annual forex rate for all investment income received in a given tax year, e.g. 1.3013 for 2022. That simplifies record keeping for those of us receiving stock dividends in USD every month or two, and additionally in your case rental income. I make that ACB adjustment once a year when the annual forex rate is known.

Investors who are actively buying and selling USD every year by buying/selling USD securities are their own worst enemies with having to do all those forex calculations. They either are ignorant of the need to track ACB in CAD equivalent by not following the rules or they are into BDSM pleasures keeping records. Stop it already!

Anecdote: I break the rules when purchasing consumer goods and services in USD (online orders and vacations) by NOT calculating forex gains/losses for the disposition of that USD. My rationale is that I am: 1) consuming USD rather than investing it for income/profit, and 2) the amounts are small enough to typically fall within the $200 annual allowance for forex gains/losses.

This stuff can create severe headaches and/or indigestion.

April 6, 2023
7:59 pm
Fritz23
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AltaRed said
1. It is an absolute brute to keep track if one is constantly selling* or buying** USD. The answer is to minimize USD buy/sell transactions to minimize ACB recordkeeping to perhaps one a year (in my case, less than once a year).
* Sells that trigger ACB adjustments include selling USD to buy a security such as USD stock, a USD money market mutual fund, or to buy CAD, or to buy consumer goods in USD.
** Buys that trigger ACB record keeping include receiving USD as a result of selling a USD security or USD money market fund.

1a. Since I hate record keeping, I generally only move USD between deposit accounts such as between USD HISA savings accounts and USD ISAs that do not result in 'triggers'.

2. Receiving recurring investment income in USD is not the same as a buy/sell capital transaction. For recurring investment income received in USD, CRA allows one to use the annual forex rate for all investment income received in a given tax year, e.g. 1.3013 for 2022. That simplifies record keeping for those of us receiving stock dividends in USD every month or two, and additionally in your case rental income. I make that ACB adjustment once a year when the annual forex rate is known.

Investors who are actively buying and selling USD every year by buying/selling USD securities are their own worst enemies with having to do all those forex calculations. They either are ignorant of the need to track ACB in CAD equivalent by not following the rules or they are into BDSM pleasures keeping records. Stop it already!

Anecdote: I break the rules when purchasing consumer goods and services in USD (online orders and vacations) by NOT calculating forex gains/losses for the disposition of that USD. My rationale is that I am: 1) consuming USD rather than investing it for income/profit, and 2) the amounts are small enough to typically fall within the $200 annual allowance for forex gains/losses.

This stuff can create severe headaches and/or indigestion.  

Does **Buys... answers my 2. Question "Is there a difference in your #4 Example 2 above, if the USD deposited in a HISA by (a) exchanging CAD in USD or (b) depositing USD without exchanging CAD in USD (e.g. using USD from US rent income)?" WITH NO?

April 7, 2023
4:59 am
savemoresaveoften
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When u say ‘sell usd’ to buy a US stock, do u just mean use ur usd that u already have to buy US stock ?? It’s confusing to me what ‘sell usd’ means. If u are using cad to buy a US stock, one would be ‘buy usd sell cad’ to buy US stock.

April 7, 2023
7:41 am
AltaRed
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savemoresaveoften said
When u say ‘sell usd’ to buy a US stock, do u just mean use ur usd that u already have to buy US stock ?? It’s confusing to me what ‘sell usd’ means. If u are using cad to buy a US stock, one would be ‘buy usd sell cad’ to buy US stock.  

When you 'use' USD cash to buy a US stock, you are 'selling USD' in the eyes of CRA to be used for something else. Use of that USD cash for that transaction triggers a 'CAD equivalent disposition of USD' at the forex rate in effect on the date of that transaction, and results in a cap gain or loss in foreign exchange per https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/bonds-debentures-promissory-notes-other-similar-properties/foreign-currencies.html

Every use of USD (except for transfers/movement between USD deposit accounts such as USD savings accounts or brokerage ISAs) results in the disposition of USD for foreign exchange cap gains/losses taxation purposes.

April 18, 2023
12:25 pm
svg1234
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Just a heads up...
If you buy and then sell any amount of TDB8152 (the TD USD ISA), even though you are buying and selling at the exact same USD ACB (i.e. $10 USD/unit), it is included on your T5008 and considered a gain/loss depending on what the forex rate was when purchases versus when sold. IMHO, this is absolutely ridiculous, yet there it is.

April 18, 2023
12:37 pm
AltaRed
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svg1234 said
Just a heads up...
If you buy and then sell any amount of TDB8152 (the TD USD ISA), even though you are buying and selling at the exact same USD ACB (i.e. $10 USD/unit), it is included on your T5008 and considered a gain/loss depending on what the forex rate was when purchases versus when sold. IMHO, this is absolutely ridiculous, yet there it is.  

That should NOT be the case because ISAs are deposit accounts (with T5 tax slips) and CRA policy specifically says movements between deposit accounts does NOT trigger cap gains/losses due to forex. Any number of googled links on this subject from accountants and even banks like RBC will tell one that. So might taxtips.ca and articles from adjustedcostbase.ca

I would NOT include that entry in Schedule 3. If it was a USD money market mutual fund, i.e. T3 tax slip, then it would trigger a forex gain/loss.

TDDI probably doesn't get that just because TD8152 is transacted through the mutual fund processing system, it is NOT a mutual fund. If I was you, I would call up TDDI and tell them to re-issue the T5008 without it and cite CRA that says transfers between deposit accounts does NOT trigger acquisition/disposition.

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