Tax on US dividends and currency

dazmck10

Registered User
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29
Hello,

I am trying to figure out how this particular situation works with regards to tax.

Say you have a brokerage account and you hold US shares. You also decide to keep any USD dividends in dollars, not converting them back to euro.

Now to calculate income tax on the dividends I assume you use the EUR/USD exchange rate on the day you received it.

But say I continue to hold the dollars for multiple years in the brokerage account and the dollar rises in value relative to euro. Would there be a capital gains on these dollars when exchanged for euros, even though you have paid income tax on them at an earlier date?

If so how would you calculate your gain?

Thanks,
Darren
 
There wouldn't be, no.

Separately, there are reference exchange rates given by Revenue each year for the major currencies to be used when translating for tax purposes, I would use those rather than various rates throughout the year when dividends are received. Much simpler when doing your return.
 
Hmm interesting, thanks for the response.

I imagined there would be CGT for holding the dollars since foreign currency is considered an asset.
 
There wouldn't be, no.

Separately, there are reference exchange rates given by Revenue each year for the major currencies to be used when translating for tax purposes, I would use those rather than various rates throughout the year when dividends are received. Much simpler when doing your return.

This is wrong unfortunately.

When you acquire dollars (by whatever means), you are acquiring a chargeable asset (currency).

There would be a CGT issue in the circumstances outlined by the OP.
 
If so how would you calculate your gain?
The same as if you had bought dollars the day you received your dividends. You already calculated their euro value in order to pay tax on the dividends. Whenever you actually convert back to euro in future, the difference between the value you calculated then and the value now is your gain (or loss).
 
Thanks for the input guys.

Say I didn't convert back to euros after a few years but instead purchased more US shares, would there be CGT issue here?
 
Whenever you no longer have the dollars, you have disposed of them. That's when CGT becomes due. So:

1) Receive dividends in dollars on date 1 -- income tax due on euro equivalent, and you have now purchased dollars at that price.
2) Buy shares with dollars on date 2 -- you have disposed of the dollars and are liable for CGT on difference in value between dates 1 and 2
3) Sell shares on date 3 -- you are liable for CGT on the difference in their euro value between dates 2 and 3

In all cases you can deduct any transaction costs from your gain (but not things like ongoing account maintenance charges).

See also these threads:

https://www.askaboutmoney.com/threads/interesting-capital-gains-tax-question.174903/

https://www.askaboutmoney.com/threa...ncy-exchange-portion-of-a-stock-trade.199731/

I will also point out what I did in the second one -- I'm not an expert, so take with a pinch of salt. However, I'd be reasonably confidant that purchasing shares with USD represent disposal of one asset and acquisition of another as it's the only interpretation that makes sense.
 
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Illuminating stuff... confuses me a little.

I buy GBP to buy a car (before Brexit vote), I then purchase wasting chattels in the UK with the GBP after Brexit vote, am I able to write off the lose in value of GBP while I held it against (say) a gain on sale of shares elsewhere?
 
Interesting, makes sense.

So using a platform like DeGiro for US shares is much simpler then, because USD dividends are auto converted to euros when received?
 
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So using a platform like DeGiro for US shares is much simpler then, because USD dividends are auto converted to euros when received?
Yes, and in general a euro trading account is simpler, where currency conversion happens at the point of buying and selling shares (or receiving dividends). Since you never actually hold the currency you only have to account for the share transactions.
 
Say you use something like DRIP to automatically reinvest dividends.
And you also make sure to invest new funds as quickly as possible.
And you never hold onto more than 100$ for longer than a day or two.
Would it then be acceptable to ignore currency gains?

Thanks
 
The easiest way to understand it is: you're liable for tax on your gains. If you take an approach that doesn't make any gains, then yes it's acceptable to ignore it because you don't have any gains to be taxed on.
 
1) Receive dividends in dollars on date 1 -- income tax due on euro equivalent, and you have now purchased dollars at that price.
2) Buy shares with dollars on date 2 -- you have disposed of the dollars and are liable for CGT on difference in value between dates 1 and 2
3) Sell shares on date 3 -- you are liable for CGT on the difference in their euro value between dates 2 and 3

This explanation is like poetry to me. dub_nerd thank you so much for this crystal clear explanation!!! :)
 
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