Taxpayers selling foreign investments may be required to declare their capital gains or losses on their tax returns. The amount you need to declare depends on several factors, including the tax treaty between Canada and the country where you sold the investment.
Calculating Capital Gains or Losses
To determine your capital gains or losses after selling foreign investments, you must subtract the adjusted cost base (the amount paid for the investment plus commission and fees) from the amount for which you sold the investment. If you are calculating capital gains or losses for the sale of stock, do not include commission in the sale price.
- If you earn money through the transaction, the earnings are a capital gain, and you must report 100 % of that amount on your income tax return, which will, in turn, calculate out the 50% rule for capital gains.
- If you lose money through the sale, you suffer a capital loss that may also need to be reported on your tax return.
Understanding Superficial Losses
Certain activities turn capital losses into superficial losses, which cannot be deducted from your income:
- If you, your spouse or an associate repurchases foreign stocks within 30 days after selling them at a loss, that renders the capital loss a superficial loss.
- If you sell shares at a loss and your spouse or a business you run purchases those shares two weeks later, you cannot claim a capital loss on your tax return.
- Similarly, if you transfer the stocks to a registered retirement savings plan or another investment vehicle for which you are the beneficiary, you cannot claim a capital loss on them.
Converting Foreign Income to Canadian Dollars
To report income from the sale of foreign investments on your tax return, you must convert all amounts into Canadian dollars. To do so, use the exchange rate on the day you bought or sold the shares.
Reporting Investments Valued at Over $100,000
If you own foreign investments valued at over $100,000, you must report them, regardless of whether you have sold them during the tax year. This requirement affects all investments you have for a business or profit-based purposes but not personal-use property.
For example, if you own a rental property in the United States valued at $300,000, that foreign property is worth more than $100,000, and you must report it on a T1135. However, if you own the very same property but use it as a vacation home rather than as a profit-generating rental property, you do not have to declare it.
Claiming the Federal Foreign Tax Credit
If you have been charged tax by the country where you sold the investment, you may be able to avoid double taxation through the federal foreign tax credit. To claim this credit, file a T2209. The Canada Revenue Agency may offer you a tax credit up to 15 percent of the foreign taxes you paid on the sale based on the tax treaty between the other country and Canada.