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Ask a MoneySense expert, with the added wrinkle: What if you're a U.S. citizen
Q: I have a question about reporting capital gains realized in the United States as a Canadian citizen. When I was younger, I received some certificated shares of DE (NYSE) in a trust account as a gift. The shares have since split 2-1, and I sold all shares online this year. On the trading platform (Computershare), there is no Adjusted Cost Base (ACB) for the shares listed. My questions are:
1) How do I calculate the ACB for these shares?
2) As a Canadian, how do I report the capital gain on my taxes next year? Do I need to file with the Internal Revenue Service (IRS) or can I only file with Canada Revenue Agency (CRA)?
—Ben
A: Thank-you for the question, Ben.
The Adjusted Cost Base (ACB) of the shares, which is a calculation used to determine the cost of an investment for tax purposes, is their fair market value at the time you acquired them. You can find historical pricing online for almost any stock that is still listed. If the stock was acquired before 1972, the ACB will be the value on December 22, 1971. CRA can provide the value of stocks traded on that date. Because the shares have split, be sure to multiply the value by the number of shares that you acquired, not the number that you sold.
Assuming you are a resident of Canada, you will report the capital gain on Schedule 3 of your Canadian tax return in the year of sale, in Canadian funds. Canada taxes based on your residency, not citizenship and taxpayers must report their worldwide income.
Your capital gain will be equal to the gross proceeds from the sale less the adjusted cost base (ACB) less the costs of selling the shares (brokerage fees). Any capital gains reported can be offset by any capital losses you may have had this year or in prior years. You may also offset some of the net gains by making a charitable donation before the end of the year.
If you are a U.S. person (U.S. citizen or alien who is admitted for permanent residence in the U.S.) then you will have to report the gain on the U.S. tax return that you are required to file each year. If you are reporting the gain in two countries, then you would be eligible to claim a foreign tax credit on both returns based on the taxes payable on the gain to the other country.
If you are not a U.S. person, then the fact that the shares are listed on a U.S. exchange is not sufficient to require you to report the gain to the IRS. However, depending on the value of the shares, you might have missed reporting them on form T1135 Foreign Income Verification Statement. This is required when the cost of assets exceeds $100,000.
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