On Tuesday, the Loonie was worth $0.7657 US. This is the highest value we’ve seen since September 23, 2016. Sadly the dollar is still more than 30 down from January of 2013 when it was last on par with the US Dollar. So what are the tax implications for investors of exchange rate fluctuations?
Investors who are receiving investment income from the US enjoy larger returns when the value of the US dollar increases and lower returns when the value of the Canadian dollar increases.
The value of capital assets purchased in the US (expressed in Canadian dollars) increases as the value of the US dollar increases and decrease in value as the value of the Canadian dollar increases.
So, if you invested $100,000 in the US in early 2013, your accrued gain on your investment consists of the increase in value of asset (in US dollars) plus an additional 30% due to the exchange rate.
The accrued gain will only become taxable when the asset is disposed of. When reporting the disposition on your T1 return, values must be converted to Canadian dollars.
If, instead, you had deposited $100,000 in a US bank account and retrieved the $100,000 US this year, you would have to report a foreign currency gain equal to the difference between the value of the cash received in Canadian dollars minus the value of deposit in Canadian dollars.
Thank you to the Knowledge Bureau