what cad exchange rate to use for 2017 usa tax return
Complicated substitution: How to deal with foreign income when doing your taxes
If you received foreign income during the year or sold a foreign stock, your tax calculations tin can exist a flake more complicated. Hither's a quick guide
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Completing a tax return when all your income and taxation slips are in Canadian dollars can be a difficult task on its ain. But if you received foreign income during the year or sold a foreign stock, your revenue enhancement calculations can exist a bit more complicated.
Here's a quick guide on how to bargain with foreign currency income and gains (losses) on your Canadian return.
Foreign income
If you received foreign income, either from a foreign employer, a foreign pension plan or from owning foreign investments, you lot must report this income on your return in Canadian dollars.
The Canada Revenue Bureau says that you are to utilize the Bank of Canada exchange rate in effect "on the day you received the income." If, however, the amount was essentially paid evenly throughout the year, yous can utilize the average annual rate for the year, which can be found on the aforementioned site. For case, if you received U.S. dividends throughout 2017, your boilerplate Canada/U.Due south. strange exchange charge per unit would be one.2986.
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Any foreign taxes withheld on your non-registered foreign income may entitle you to claim a strange tax credit when y'all summate your federal and provincial or territorial taxes. Y'all would also use the same rates that were used for the income to calculate the Canadian equivalent of the strange taxes paid. Note that if you had strange taxes withheld on foreign dividends paid to your TFSA, you cannot claim a foreign revenue enhancement credit for those taxes, which is why information technology'due south best to agree foreign (including U.South.) dividend paying stocks outside a TFSA.
Just merely considering the boilerplate almanac commutation rate is user-friendly, does information technology mean that you have to use that charge per unit for the year? Simply over a decade ago, the Canada Acquirement Agency (CRA) was asked whether a taxpayer was required to use the Bank of Canada annual average exchange rate to convert alimony and investment income to Canadian dollars.
The taxpayer wanted to know if she could ignore the boilerplate almanac rate for the twelvemonth and use the bodily commutation rates she received from her bank when she deposited her foreign pension and investment income into her Canadian bank business relationship. The CRA responded that at that place was cypher in the Income Tax Act nor in the CRA's published material that actually requires a taxpayer to employ the Bank of Canada annual average exchange rate to convert alimony or investment income to Canadian dollars. Indeed, the current 2017 Full general Income Tax and Benefit Guide states that you should "use the Bank of Canada exchange rate in outcome on the day yous received the income."
With the fluctuating Canada/US rate, you may wish to take a closer look and decide which conversion method (bodily vs. average) gives you the best tax result based on the timing of your payments.
For example, allow's say Sarah received a total of United states of america$3,000 of U.Southward. dividend income in 2017. If she were to apply the average annual Bank of Canada substitution rate of 1.2986 for 2017, she would report $three,896 of income on her 2017 return.
Only if we were to dig a fleck deeper, we see that this strange income was the result of a dividend Sarah received on Sept. 15, 2017 when the Canada/US charge per unit was 1.2182. Using the bodily rate would result in Sarah reporting income of $3,655, a reduction in income of $241 compared with the "average rate.
While the average rate method is certainly more than convenient, information technology may exist worth the trouble of hunting downwardly those historical rates as it might save yous some tax.
Selling foreign property
The other cause of foreign currency tribulations is properly calculating the gain or loss on the auction of foreign stocks, bonds, or even real estate. For these transactions, yous are supposed to utilise the actual foreign commutation rate that was in event on the day of the transaction.
In other words, to properly report a gain (loss) on a foreign property, yous would catechumen the proceeds to Canadian dollars using the commutation charge per unit on the date of sale and compare that to the adjusted cost base (ACB) or tax cost of the property using the foreign exchange charge per unit on the appointment of purchase of the property.
Let's say Finn bought 1,000 shares of a U.S. stock on Nov. 8, 2012 when the price was Us$ten/share and the U.S. dollar was at par with the Canadian dollar (the actual exchange rate was i.0004, if we want to exist precise!) By May 2017, the price of the shares had fallen to US$viii and Finn decided he wanted to practice some tax loss harvesting (or so he thought at the time…) to use the U.s.$2,000 (US$x – US$viii = US$ii ten 1,000) accrued uppercase loss against other gains he realized in 2017.
So, on May 11, 2017, when the exchange charge per unit was $1 U.S. = $one.3707 CDN, Finn sold the U.S. shares for Us$8,000 yielding proceeds of $10,966. And then, what initially appeared to be an accrued upper-case letter loss of Usa$2,000 (US$10,000 – United states$8,000) turned out to exist a capital proceeds of $962 ($10,966 — $10,004) for Canadian tax purposes!
Finally, keep in mind that the taxman requires you to report your foreign substitution proceeds (loss) on your 2017 securities transactions on your 2017 tax return even if you lot don't actually convert the foreign funds back to Canadian dollars, which may be the case if you trade U.S. stocks in a U.South. dollar, non-registered trading account.
Jamie.Golombek@cibc.com
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Revenue enhancement & Estate Planning with CIBC Fiscal Planning & Advice in Toronto.
Source: https://financialpost.com/personal-finance/taxes/complicated-exchange-how-to-deal-with-foreign-income-when-doing-your-taxes
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