Ancient Tax Law: Still Here, Often Forgotten

Evelyn Jacks

Are you taking your exemption on foreign currency exchange gains?  Are you reporting them?  It’s part of some “ancient tax law” still with us today.  And some of those provisions are often forgotten. Here’s a few of them:

Backdrop:  Our current taxation system is based on self-assessment and compliance.  For residents of Canada, it also requires the reporting of world-wide income in Canadian funds on time and on the proper forms; encouraged by a system of increasingly expensive penalties and interest. 

Its skeletal framework was the result of major tax reform that began with the appointment of the Carter Royal Commission in 1962; the publication of the Royal Commission on Taxation in 1966, the Proposals for Tax Reform (also known as the Benson White Paper), published in 1969, the release of detailed legislation in June of 1971 and finally, the passage of all of this into law in December 1971.  Most people know that was the birth of capital gains taxation in Canada, but a few other pieces of ancient tax law remain, albeit, often forgotten.  Here’s a gem:

The $200 Capital Gains Exemption on Foreign Exchange.  Most people don’t know that the first $200 of net capital gains on foreign exchange transactions is exempt from tax. CRA considers those transactions to be capital gains or losses, but they are only reportable if the amount of the gain is more than $200.  If less than that – no worries, you don’t have to report.  It eliminates the need to keep track of smaller transactions when you cross the border for shopping trips, for example.

But for larger transactions, keeping track is critical because you could be offside on your tax return.  It’s expected you’ll self report and then take advantage of the $200 exemption.  Generally speaking, to  calculate the value of the transaction, you’ll covert everything to Canadian funds using the Bank of Canada exchange rate in effect for the day of the transaction.

There are exceptions to this general rule, in particular if a corporate taxpayer makes a valid functional currency election. In some cases, average exchange rates can be used.