Filing Your Return -> Stocks and Bonds -> Small Business Income Tax -> Reporting Foreign Transactions
When foreign amounts, including purchases and sales, income, expenses, and foreign taxes paid, are reported on your Canadian personal or corporate income tax return, they must be reported in Canadian dollars.
Sales of investments are recorded on Schedule 3 of the personal tax return, in Canadian dollars. At the same time, the adjusted cost base (ACB) of that investment is also recorded in Canadian dollars. If you have non-registered investments held in US$, it's very important to keep accurate records of the date the investments were purchased, and the exchange rate on that date, to calculate your Canadian dollar ACB. Your brokerage statements will show you the US$ ACB of your investments, but will not show you the Cdn$ ACB.
Investment income is reported on Schedule 4 of the personal tax return. If you are using a software package to do your tax return, record the information from your tax slips in the tax slips area of the return. The amounts on your tax slip may not be in Canadian dollars. If they are not, you have to convert the amounts and enter the Canadian dollar amounts into the tax return.
When you record the amounts from your tax slips using personal income tax software, any foreign withholding tax will automatically be entered into the areas for calculating the federal and provincial foreign tax credits. The federal foreign tax credit is calculated on Schedule T2209, and at least a portion of it should reduce your taxes payable. The provincial or territorial foreign tax credit is calculated on Schedule T2036. See the foreign tax credit article for how to deduct the amount not recovered by the foreign tax credit.
Converting Foreign Amounts to Canadian Dollars
The foreign exchange rate used to convert the foreign currency transaction into Canadian dollars is either
as quoted by the Bank of Canada on the particular day or on the closest preceding day for which a spot rate is quoted, as per the definition of "relevant spot rate" in s. 261(1) of the Income Tax Act.
When assets, including investments, are purchased or sold, the exchange rate in effect on the date of the transaction should be used. Dividends received throughout the year can be converted at either the transaction date rate or the average annual exchange rate for the taxation year, but the method used should be consistent from year to year.
The Bank of Canada publishes the noon rate in its historical lookup tables, and also publishes the average annual exchange rate for the taxation year based on the noon rate. However, effective March 1, 2017, the Bank of Canada changed how it publishes foreign exchange rate data. It now publishes a single rate reflecting the daily average exchange rate each day at 4:30 PM ET. See Foreign Exchange Rates Published by the Bank of Canada on the Bank of Canada website.
If any income or expense that you have received or paid was converted to Canadian dollars as part of the transaction, then the Canadian dollar amount that you actually received or paid would be reported as your income or expense. For example:
Historic foreign exchange rates can be downloaded from the University of BC Pacific Exchange Rate Service using their Database Retrieval, which allows download of rates in various formats, including Excel.
The annual average rate for converting US dollars for 2018, as per the Bank of Canada, was 1.2957 (1.2986 for 2017). To convert US dollar amounts to Canadian dollars for 2017, multiply the US $ amount by 1.2986. The annual average exchange rates for years up to and including April 28, 2017 are now considered "legacy" rates, and can be downloaded from the Bank of Canada Legacy Noon and Closing Rates.
Reporting Foreign Assets
If you own foreign assets with a cost basis exceeding $100,000 Canadian at any time in the year, this must be reported on the T1135, foreign asset verification statement. This form must be filed by Canadian resident individuals, corporations and trusts, as well as many partnerships. See our article on Foreign Asset Reporting.
See also- Tax treatment of shares in foreign corporations
Canada Revenue Agency Resources:
Tax Tip: You may be able to recover some of the foreign tax paid, by claiming a foreign tax credit.
Revised: April 17, 2019
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