Calculating capital gains on U.S. stocks

Selling U.S. equities? Keep the exchange rate in mind

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Q: I hold stocks in two non-registered accounts. One is holding Canadian equities and the other is holding U.S. stocks.  When I sell a U.S. stock, the cash remains in the U.S. account.

Since the exchange rate has increased during the time the U.S. account was first set up, how do I calculate capital gains or losses on sold U.S. equities?

— Gary

A: Most investors who have purchased U.S. stocks in the past five years have made money. It sounds like you’re one of them, Gary. U.S. markets have risen steadily, but the U.S. dollar has also taken off in the past two years after a number of years near parity with the Canadian dollar.

Fluctuations in the exchange rate can clearly have an impact on your Canadian dollar returns. As an example, the S&P 500 has returned about 3% in the past year. However, when converted to Canadian dollars, that return jumps to about 20%.

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You calculate a capital gain or loss based on the sale price of an investment less the purchase price of an investment (called the adjusted cost base). Transaction costs also reduce the gain (or increase the loss).

Capital gains and losses are taxable or deductible in non-registered accounts, as you have alluded to, Gary. To the extent that you sell an investment for a capital gain, you report a taxable capital gain and typically owe tax on your tax return for the year. If you sell an investment at a capital loss, you can claim that loss against other capital gains for the year; or if you have none, you can carry the loss back up to three years to offset other net capital gains reported on your previous income tax returns; or you can carry forward the loss to claim against future capital gains.

In the case of foreign investments, you need to determine the cost in Canadian dollars based on the exchange rate at the time of purchase and do the same for the sale proceeds based on the current exchange rate. Exchange rates fluctuate over time, meaning your return in Canadian dollar terms typically differs from the return in U.S. dollars or other foreign currencies.

Ideally, you should keep track of the applicable exchange rates on your purchase of U.S. or foreign currency investments. If you haven’t, Gary, I’d suggest you consider a resource like the Bank of Canada’s 10-year currency converter found here.

It doesn’t matter if the sale proceeds stay in U.S. dollars or get converted back into Canadian dollars in your account. U.S. dollar proceeds, even if retained in U.S. cash, must still be determined in Canadian dollars on your tax return.

From a tracking perspective, you should always monitor your returns in Canadian dollars, because you have to for income tax purposes. From an investment perspective, it makes sense too since you’re living in Canada and spending money in Canadian dollars—so your Canadian returns should be your priority.

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Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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4 comments on “Calculating capital gains on U.S. stocks

  1. I found an easy way of tracking ACB for all our investments a free website that you can use to record each transaction with it’s associated fees. It also has the option to post in foreign currencies. The reports can be exported to excel spreadsheets. So far it has been a great tool for my assorted non-reg transactions.


  2. I have recently discovered the wonders of Norbert’s Gambit and have tested it with my Questrade account and happy to say that it works. However, the security is on the TSX as DLR.TO and then have them journaled over as DLR.U.TO and then sell them. My question is, since the purchase is in Canadian dollars, there’s nothing you have to figure out, however, when selling the securities, since they are in US dollars, I have to convert the selling price. My question is, since all trade are T+3, when trying to convert the funds from USD to CAD at time of buying and selling, do you take the “transaction date” or the “settlement date” as the number used?



    • You should use settlement date because that is the date used for determining which calendar year to report the transaction, it is used for the T5008 securities reporting by your broker, and it is the date when the funds are actually taken from your account to complete the purchase.


  3. s there a way to know what is true ‘capital gains’ and what is due to currently fluctuations when selling us mutual funds today inc anadian dollars
    capital gains = ‘currency fluctuations’ -‘true’ rate of return


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