Dealing with FX gains and losses on a rental property
#16
Re: Dealing with FX gains and losses on a rental property
The gain or loss arises when you spend the money (a deemed disposition). If it just sits in your account doing nothing then there’s no problem (other than that each receipt makes it more painful to calculate the adjusted cost base of course).
Links supporting this:
https://www.theglobeandmail.com/glob...ticle28440263/
How foreign exchange impacts capital gains | Advisor.ca
https://www.adjustedcostbase.ca/blog...-transactions/
https://www.canada.ca/en/revenue-age...ns-losses.html
Jonnyboy (probably not quite the correct username) posted some more CRA links with details a while back too.
Links supporting this:
https://www.theglobeandmail.com/glob...ticle28440263/
How foreign exchange impacts capital gains | Advisor.ca
https://www.adjustedcostbase.ca/blog...-transactions/
https://www.canada.ca/en/revenue-age...ns-losses.html
Jonnyboy (probably not quite the correct username) posted some more CRA links with details a while back too.
Of course, this requires you to keep a track of when you received the funds and the exchange rate on the date of receipt, if you do not wish to use the annual rate as another has suggested above but that is simply for income purposes and has nothing to do with capital gains.
#17
Re: Dealing with FX gains and losses on a rental property
If you receive, say, 1000 GBP when the exchange rate is 1.5 to the dollar then spend that 1000 when the exchange rate has changed to 2 to the dollar, the CRA considers that to be a capital gain of 500 CAD which you must report on your tax return as such. That’s the simple case, consider what it’s like when you receive monthly rent payments over a number of years and make regular payments yourself for maintenance, insurance etc.
Using your example, you declare the $1,500 to CRA as income and, irrespective of what has happened with the exchange rate, you can spend the 1000 sterling in sterling however you wish to as you have already paid the relevant tax on it.
I accept that if, at a later date, you change the funds into another currency there may be a capital gain/loss but if it remains in the same currency, there is no gain/loss.
Last edited by Almost Canadian; Feb 15th 2018 at 6:32 pm.
#18
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Re: Dealing with FX gains and losses on a rental property
Bullshit.
Using your example, you declare the $1,500 to CRA as income and, irrespective of what has happened with the exchange rate, you can spend the 1000 sterling in sterling however you wish to as you have already paid the relevant tax on it.
I accept that if, at a later date, you change the funds into another currency there may be a capital gain/loss but if it remains in the same currency, there is no gain/loss.
Using your example, you declare the $1,500 to CRA as income and, irrespective of what has happened with the exchange rate, you can spend the 1000 sterling in sterling however you wish to as you have already paid the relevant tax on it.
I accept that if, at a later date, you change the funds into another currency there may be a capital gain/loss but if it remains in the same currency, there is no gain/loss.
This is what our once resident tax expert thinks/thought:
http://britishexpats.com/forum/canada-56/capital-gains-foreign-currency-718432/#post9387875
Whether you spend the money in GBP or convert it to CAD first then spend it, the CRA treats that as a capital gain that must be reported.
And here’s the specific words from the CRA link that apply in the house rental case:
9. Where a taxpayer has a bank account in a foreign currency into which receipts from customers are deposited or on which cheques are drawn for the payment of foreign expenses or purchases, there may be, especially in the case where a taxpayer operates a foreign branch, numerous transactions on which a foreign exchange gain or loss will result. If the receipts in foreign currency are accumulated in the foreign bank account and converted periodically into Canadian dollars, there may be a foreign exchange gain or loss when each conversion is made. If the foreign funds are used to pay for purchases or to settle accounts payable, there may be, in respect of the funds so used, a foreign exchange gain or loss in the same amount as if those funds had been converted into Canadian dollars at that time and other Canadian dollars had been used to make the payment. When foreign exchange gains and losses are computed for such transactions any of the methods indicated above may be used.
Last edited by dgagitw; Feb 15th 2018 at 6:49 pm.
#19
Re: Dealing with FX gains and losses on a rental property
If you receive, say, 1000 GBP when the exchange rate is 1.5 to the dollar then spend that 1000 when the exchange rate has changed to 2 to the dollar, the CRA considers that to be a capital gain of 500 CAD which you must report on your tax return as such. That’s the simple case, consider what it’s like when you receive monthly rent payments over a number of years and make regular payments yourself for maintenance, insurance etc.
Link to a thread on the subject of capital gains when spending foreign currency:
http://britishexpats.com/forum/canad...2/#post9387875
http://britishexpats.com/forum/canad...2/#post9387875
You also seem to be talking about a capital gain between money held when arriving in Canada and the value of that money after.
If you are resident in Canada and receiving money/profit/income from a foreign rental, that's not the same thing.
The link in that other thread also seems to be about something other than simply maintaining a rental property with ongoing income and expenses where expenditure regardless of exchange rate fluctuations is simply expenditure relating to the rental income and nothing more.
#20
Re: Dealing with FX gains and losses on a rental property
I think you’ll find you’re the one talking shit.
This is what our once resident tax expert thinks/thought:
http://britishexpats.com/forum/canad...2/#post9387875
Whether you spend the money in GBP or convert it to CAD first then spend it, the CRA treats that as a capital gain that must be reported.
And here’s the specific words from the CRA link that apply in the house rental case:
9. Where a taxpayer has a bank account in a foreign currency into which receipts from customers are deposited or on which cheques are drawn for the payment of foreign expenses or purchases, there may be, especially in the case where a taxpayer operates a foreign branch, numerous transactions on which a foreign exchange gain or loss will result. If the receipts in foreign currency are accumulated in the foreign bank account and converted periodically into Canadian dollars, there may be a foreign exchange gain or loss when each conversion is made. If the foreign funds are used to pay for purchases or to settle accounts payable, there may be, in respect of the funds so used, a foreign exchange gain or loss in the same amount as if those funds had been converted into Canadian dollars at that time and other Canadian dollars had been used to make the payment. When foreign exchange gains and losses are computed for such transactions any of the methods indicated above may be used.
This is what our once resident tax expert thinks/thought:
http://britishexpats.com/forum/canad...2/#post9387875
Whether you spend the money in GBP or convert it to CAD first then spend it, the CRA treats that as a capital gain that must be reported.
And here’s the specific words from the CRA link that apply in the house rental case:
9. Where a taxpayer has a bank account in a foreign currency into which receipts from customers are deposited or on which cheques are drawn for the payment of foreign expenses or purchases, there may be, especially in the case where a taxpayer operates a foreign branch, numerous transactions on which a foreign exchange gain or loss will result. If the receipts in foreign currency are accumulated in the foreign bank account and converted periodically into Canadian dollars, there may be a foreign exchange gain or loss when each conversion is made. If the foreign funds are used to pay for purchases or to settle accounts payable, there may be, in respect of the funds so used, a foreign exchange gain or loss in the same amount as if those funds had been converted into Canadian dollars at that time and other Canadian dollars had been used to make the payment. When foreign exchange gains and losses are computed for such transactions any of the methods indicated above may be used.
#21
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Joined: Jul 2008
Location: Toronto
Posts: 534
Re: Dealing with FX gains and losses on a rental property
That link concerns spending does it not? Regular payments for maintenance and insurance...on the foreign rental? Those are then rental expenses.
You also seem to be talking about a capital gain between money held when arriving in Canada and the value of that money after.
If you are resident in Canada and receiving money/profit/income from a foreign rental, that's not the same thing.
The link in that other thread also seems to be about something other than simply maintaining a rental property with ongoing income and expenses where expenditure regardless of exchange rate fluctuations is simply expenditure relating to the rental income and nothing more.
You also seem to be talking about a capital gain between money held when arriving in Canada and the value of that money after.
If you are resident in Canada and receiving money/profit/income from a foreign rental, that's not the same thing.
The link in that other thread also seems to be about something other than simply maintaining a rental property with ongoing income and expenses where expenditure regardless of exchange rate fluctuations is simply expenditure relating to the rental income and nothing more.
#23
Joined: Sep 2008
Posts: 12,830
Re: Dealing with FX gains and losses on a rental property
The gain or loss arises when you spend the money (a deemed disposition). If it just sits in your account doing nothing then there’s no problem (other than that each receipt makes it more painful to calculate the adjusted cost base of course).
Links supporting this:
https://www.theglobeandmail.com/glob...ticle28440263/
How foreign exchange impacts capital gains | Advisor.ca
https://www.adjustedcostbase.ca/blog...-transactions/
https://www.canada.ca/en/revenue-age...ns-losses.html
Jonnyboy (probably not quite the correct username) posted some more CRA links with details a while back too.
Links supporting this:
https://www.theglobeandmail.com/glob...ticle28440263/
How foreign exchange impacts capital gains | Advisor.ca
https://www.adjustedcostbase.ca/blog...-transactions/
https://www.canada.ca/en/revenue-age...ns-losses.html
Jonnyboy (probably not quite the correct username) posted some more CRA links with details a while back too.
Earnings on money sitting in an account do not impact any ACB, earnings would be either income or CGT, depending on how they were earned and reported accordingly.
Income and Capital Gains are quite separate and taxed differently.
https://www.canada.ca/en/revenue-age...gain-loss.html
As entertaining as this thread is, anyone reading this thread should take professional advice before making financial decisions. Alternatively, CRA can be contacted in writing and asked for a written determination, they are the only authority on taxation.
Last edited by Aviator; Feb 16th 2018 at 12:28 am.
#25
Re: Dealing with FX gains and losses on a rental property
When you dispose of foreign property - whether that is currency or anything else - there is a capital gain or a capital loss whether you like it or not. Now, maybe most people at small scale ignore that and maybe CRA don’t care that much, but that doesn’t change the facts.
But you're talking about income and expenditure on a property that not only have you not disposed of, you don't even have it yet.
#26
Re: Dealing with FX gains and losses on a rental property
Look the whole thing with renting out property in a foreign country is a huge pain in the backside because of currency conversion, there's no question about it. The income has to be converted based on what you've just pointed out.
Capital gains is a different subject which is mainly what he's banging on about. You can get all kinds of capital gains and losses because of tax issues, it is a huge pain. You are technically crystalizing a capital gain if you spend the money that's what the CRA says here:
If the foreign funds are used to pay for purchases or to settle accounts payable, there may be, in respect of the funds so used, a foreign exchange gain or loss in the same amount as if those funds had been converted into Canadian dollars at that time and other Canadian dollars had been used to make the payment.
I don't see the CRA going after all the snowbirds for example who undoubtedly do this frequently.
Say you receive £100 in rent. At that time it's worth $170. You then use it later on to buy paint for the house, and at that time it's worth $200. You've obviously been able to buy $30 more paint due to the difference in the exchange rate thus you have crystalized a gain and that gain is technically subject to Canadian CGT. Of course it's still only £100 of paint and probably the same amount of paint, but for tax purposes, there's a gain.
IMX the CRA are really interested in US tax returns, so if you report rent on your 1040NR they really want that taxed in Canada and if you sell the house in the US then that is a reportable event (even if there is no capital gain in the US) and the CRA can see that return and there may be CGT in Canada.
That seems to be the extent of their enforcement efforts as far as private property abroad goes.
De minimus non curat lex
It gets much more dicey with equities.
Anyway if the OP is really worried about it, the solution is to put it into a corporation.
#27
Re: Dealing with FX gains and losses on a rental property
They're going to want CGT in addition to more income tax resulting from the same transaction?