Tax triggered with currency fluctuation

K

King of Kildare

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Hello,

I wonder if someone can give me a bit of guidance and see if my calculations and timings below are right. This is just an example. So I’m not considering the real world with the exemptions etc.

I have a U.S. trading account, and I would like to check if the scenario below is correct please:

So for example
  • Today the 15 of March let’s suppose that 1$=1€ and I buy 1000 Apple shares for 1$ each for a total of 1000$
  • On September 30 I sell the 1000 Apple shares for a 100$ profit and receive 1100$ on the brokerage account. On this transaction I only have a tax liability on the 100$ gain. The Euro lost value since March and on this day 1$=1.2€ so 100$=120€. I pay 33% CGT of 33$ (so 39.6€). On my account I now have 1067$
  • On December 31 I decide to close the trading account and bring back the sum of 1067$ to my AIB account in Ireland and on this day the Euro has lost even more since March so 1$ will buy 1.4€
So my taxable foreign currency gain would be the gain obtained by the initial capital of 1000$ now worth 1400€ (so a CGT tax of 33% on the 400€). I then need to take care of the balance of 67$ where since September I have a subsequent currency gain considering the 0.2 change

so 67$x0.2 = 13.4€ tax @ 33% = 4.4€

Is this the correct way to calculate the taxation on the currency fluctuation when dealing with US shares denominated in US $$$ with a US broker ?
Is the currency fluctuation tax only triggered once the sums are wired back into Ireland ?

Thanks

KK
 
King of Kildare said:
I pay 33% CGT of 33$ (so 39.6€)
Click to expand...

If you did, you would have underpaid your CGT liability.

Your chargeable gain for CGT purposes is:

EUR value of the disposal proceeds of the Apple stock = EUR 1,320 (you use the FX rate on the day you sold the shares)

less

EUR value of the acquisition cost of the Apple stock = EUR 1,000 (you use the FX rate on the day you purchased the shares)

Chargeable Gain = EUR 320

CGT @ 33% (ignoring Annual Exemption) = EUR 105.60

This principle has been arrived at in case law and is legislated for in Section 552(1A):

No 39 of 1997, Section 552, Acquisition, enhancement and disposal costs.

Acquisition, enhancement and disposal costs.
www.charteredaccountants.ie

and Revenue guidance is outlined in paragraph 10.15 here:


You don't convert the USD gain on the Apple stock into EUR at the FX rate on the date of disposal to calculate your CGT on the disposal of the Apple shares; you calculate it like I have outlined it above.

You had EUR 1,000 cash starting out. Cash is not a chargeable asset for CGT.

When you converted this into USD, you acquired foreign currency. Foreign currency is a chargeable asset (Asset A). See here:


When you used this USD cash to purchase Apple shares, you immediately disposed of the foreign currency asset (Asset A). No chargeable gain/loss arose as you acquired and disposed Asset A at the same exchange rate.

You now have a different chargeable asset - the Apple shares (Asset B).

Asset B went up in value and you decided to sell Asset B.

The lodging of the proceeds of the sale of the shares to your brokerage account resulted in the acquisition of a new asset - Asset A. A chargeable gain arose on the disposal of the shares and as paragraph 10.15 referenced to above makes clear, the consideration for the Apple shares is converted into the EUR value at the date of sale and the acquisition cost is the EUR value of the Apple shares on the day you bought them.

You decide to retain your holding in Asset A (the USD cash).

You are deemed to acquire this at the EUR/USD FX rate on the date you acquired this asset (the date you sold your Apple shares). USD strengthens against the EUR and so you have a MTM gain on this asset.

You decide to dispose of Asset A (the USD cash) and a chargeable gain will arise based on the principles outlined above.

I know that in your example you will be using funds in the brokerage account to pay your CGT bill on the disposal of the Apple shares (and not outside funds) but the principles outlined above still apply.
 
Hi AAA
Many thanks for your time, explanation and links. I always dealt with €€€ using IBK but decided to open a U.S. broker account in January. I did some research and couldn't find anything clear about how to deal with the FX issues, but your explanation did everything. I'm sure it will help others as well.

Thanks !!
 
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