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House Sale - Funds Transfer - CGT etc.

House Sale - Funds Transfer - CGT etc.

Old Jan 28th 2015, 2:49 pm
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Default House Sale - Funds Transfer - CGT etc.

I almost started this thread with my usual "Just a quick question..." but I realised this topic is almost never quick. I've done my research and read as many threads as I can find on the topic of selling your principle residence in the UK, and the implications of this on capital gains tax both in the UK and upon transfer of the proceeds to Canada. Much of my understanding has come from this thread:

http://britishexpats.com/forum/canad...rty-uk-847488/

So I'm fairly clear on this... basically I'm exempt from CGT since it's my principle residence, although I may attract some tax if I delay transfer of the funds from the UK to Canada until after I leave and take up residence in Canada, and the exchange rate goes up in the interim. The difference between the conversion rate upon leaving and the actual rate I got upon transfer would be considered a capital gain.

Here's the thing... I bank with HSBC, I'm a Premier customer, and I have a Sterling account with HSBC Canada. This means I can transfer Sterling instantly into my Canadian sterling account absolutely free.... so no conversion, no loss/gain. I can do this on or before the day I leave the UK.

So, it's now in Canada, it's the proceeds from my principle residence sale in the UK... I have full documentation, all above board, declared etc etc. BUT, I leave the funds in Sterling in Canada until such time as I am happy with the exchange rate, then I convert.

Here's my question (sort of):

What implications does this have? The money is in Canada (in sterling) and arrived before me.... if 6-8 months from now the exchange rate decides to go North of $2 and I decide to convert, are CRA still going to want their taste of my good fortune... or am I ok since the money arrived before I took up tax residence?
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Old Jan 28th 2015, 3:22 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

I beleive, but not 100% sure as its your own home not a second home, but I think they use the rate at the time of sale. So any increase from today lets say $1:80c to 2:00$ The .20c raise is what they will be interested in.

That may be classed as income ?
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Old Jan 28th 2015, 4:54 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by ExpatCanadian View Post

Here's my question (sort of):

What implications does this have? The money is in Canada (in sterling) and arrived before me.... if 6-8 months from now the exchange rate decides to go North of $2 and I decide to convert, are CRA still going to want their taste of my good fortune... or am I ok since the money arrived before I took up tax residence?
The £ will have a tax cost in Canada of (amount of £) x (exchange rate on the day you take up residence in Canada). If the exchange rate moves in your favour and you get more $ when you eventually convert it you are looking at a capital gain.
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Old Jan 28th 2015, 5:13 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by JonboyE View Post
The £ will have a tax cost in Canada of (amount of £) x (exchange rate on the day you take up residence in Canada). If the exchange rate moves in your favour and you get more $ when you eventually convert it you are looking at a capital gain.
Yeah, of course. Should have known there wouldn't be a nice loophole
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Old Jan 29th 2015, 8:48 am
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Default Re: House Sale - Funds Transfer - CGT etc.

I have an additional question to this. If you convert your £ to $ directly, then have this in an account in Canada and you gain interest on this in the tax year, this interest no doubt would also be classified as CG right? Am I correct in understanding you would then pay CGT on said interest? Or not? Just curious and trying to learn....

Last edited by CFAmovingsoon; Jan 29th 2015 at 8:49 am. Reason: ...
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Old Jan 29th 2015, 2:59 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by CFAmovingsoon View Post
I have an additional question to this. If you convert your £ to $ directly, then have this in an account in Canada and you gain interest on this in the tax year, this interest no doubt would also be classified as CG right? Am I correct in understanding you would then pay CGT on said interest? Or not? Just curious and trying to learn....
Interest is income, not a capital gain, so the full amount is taxable, not half as with capital gains.
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Old Jan 30th 2015, 11:38 am
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Default Re: House Sale - Funds Transfer - CGT etc.

Thanks. More stuff to ponder....
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Old Feb 10th 2015, 2:38 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by JonboyE View Post
The £ will have a tax cost in Canada of (amount of £) x (exchange rate on the day you take up residence in Canada). If the exchange rate moves in your favour and you get more $ when you eventually convert it you are looking at a capital gain.
Jonboy, I've now sought professional advice on this, not that I doubt anything you've said, but since your signature line advises it, I thought I might as well get professional advice.

So I contacted my parents accountant at KPMG in Saskatoon, and have been told that if I don't convert before I arrive, then any benefit to me if the exchange rate moves in my favour after I take up residence in Canada would simply be considered income and taxed at my normal rate. It's a simple matter of the value of my assets being determined at the time I take up residency, and drawing a line under than. From then on, any movement is subject to normal Canadian taxation. She applied this scenario to any investments I might have too...

Is there something specific in your reasoning about it being a capital gain vs income that I can point her towards that might change her opinion? Is it to do with the fact that specifically it's the proceeds from a house sale?
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Old Feb 10th 2015, 2:52 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by ExpatCanadian View Post
Jonboy, I've now sought professional advice on this, not that I doubt anything you've said, but since your signature line advises it, I thought I might as well get professional advice.

So I contacted my parents accountant at KPMG in Saskatoon, and have been told that if I don't convert before I arrive, then any benefit to me if the exchange rate moves in my favour after I take up residence in Canada would simply be considered income and taxed at my normal rate. It's a simple matter of the value of my assets being determined at the time I take up residency, and drawing a line under than. From then on, any movement is subject to normal Canadian taxation. She applied this scenario to any investments I might have too...

Is there something specific in your reasoning about it being a capital gain vs income that I can point her towards that might change her opinion? Is it to do with the fact that specifically it's the proceeds from a house sale?
I thought it was capital gain too. Its just another type of investment, this one foreign currency. Any interest for the period would be taxable as income but I thought any gain due to currency was taxed as capital gain at the point you realise the gain
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Old Feb 10th 2015, 3:20 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by ExpatCanadian View Post
Jonboy, I've now sought professional advice on this, not that I doubt anything you've said, but since your signature line advises it, I thought I might as well get professional advice.

So I contacted my parents accountant at KPMG in Saskatoon, and have been told that if I don't convert before I arrive, then any benefit to me if the exchange rate moves in my favour after I take up residence in Canada would simply be considered income and taxed at my normal rate. It's a simple matter of the value of my assets being determined at the time I take up residency, and drawing a line under than. From then on, any movement is subject to normal Canadian taxation. She applied this scenario to any investments I might have too...

Is there something specific in your reasoning about it being a capital gain vs income that I can point her towards that might change her opinion? Is it to do with the fact that specifically it's the proceeds from a house sale?
ARCHIVED - Foreign exchange gains and losses. The IT has been archived but it is still the CRA's interpretation of the law.

It depends on the nature of the transaction. If you are trading in a foreign currency then FX gains or losses are treated as income. For capital transactions the FX gain or loss is treated as a capital gain or loss. Any income derived from a foreign currency investment is taxed as income but any underlying change in value of the investment is capital.

A property developer might buy and sell several houses in a year. The increase in value of the properties is treated as income because that is the business they are in. I buy a house and rent it out for several years. The rental is income. When I sell it the gain is capital. This is because I am not in the business of buying and selling homes. It is the change in value of an investment. The same principle applies.

If you are making a profit then it is in your interests to have it taxed as capital.

All IMO of course.
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Old Feb 10th 2015, 3:46 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by JonboyE View Post

All IMO of course.
Yeah... but I'm liking your opinion better than Ms. KPMG at the moment

I especially like the bit where the IT states "There are no provisions in the Act which specify whether a foreign exchange gain or loss is on account of income or capital.", and that it's basically down to interpretation of the nature of the underlying transaction. Works for me... at least I can fill out my tax return in good conscience and if they take me to task on it so be it.
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Old Feb 10th 2015, 4:25 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

If the source of the funds are of a capital nature and you transact the FX at the time of the sale it would seem this is a capital gain.

If you hold on to the funds to get a better FX, regardless of how you acquired the funds, this is speculating on the FX to get a better rate. This it would seem is an income rather than capital gain.

The interpretation would have as much to do with the timing of the FX as the source of funds.
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Old Feb 10th 2015, 5:11 pm
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Default Re: House Sale - Funds Transfer - CGT etc.

Originally Posted by Aviator View Post
If the source of the funds are of a capital nature and you transact the FX at the time of the sale it would seem this is a capital gain.

If you hold on to the funds to get a better FX, regardless of how you acquired the funds, this is speculating on the FX to get a better rate. This it would seem is an income rather than capital gain.

The interpretation would have as much to do with the timing of the FX as the source of funds.
That sounds like it would make sense, but it does also seem to contradict this part of the notice jonboy posted above:

"If, on the other hand, it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of capital assets, this gain or loss is either a capital gain or capital loss, as the case may be. Generally, the nature of a foreign exchange gain or loss is not affected by the length of time between the date the property is acquired (or disposed of) and the date upon which payment (or receipt) is effected."

To be honest, all of this may be moot anyway... if the exchange rate is close to where it is now, which is a 5 year high.... I might as well save myself the hassle and just exchange before I arrive.
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