Canuckbusiness

Start a business, Do your taxes, Save money

Foreign currency and exchange rates

Hello 2013!

You know what that means to me? It means the Bank of Canada has its annual average exchange rate available for 2012….woo hoo!

And here they are (in case you care).

Why should I care?

Because they can save you time, and occasionally, money! When you have to report foreign income or expenses on your Canadian tax return, you have 2 options:

1. Report the actual CDN$ amount received/spent after conversion has taken place

2. Use the Bank of Canada’s average annual conversion rate to estimate the income or expense.

Let’s say Uncle Bob is hired in 2012 by an American hunter to hunt moose. They get nothing, because Uncle Bob doesn’t know what he is doing, but the hunter still gives Bob US$100 because of his bubbly personality. Ecstatic, Uncle Bob takes his US$100 bill to the nearest A&W and asks them to convert it before he buys lunch. Knowing this could mean the difference between a Mama Burger sale and a Grandpa Burger, and because they don’t want to irk such a good customer, they give Bob CDN$110. Nice.

So what does Bob report for income on his 2012 Canadian tax return?

If you say, “Nothin’, cuz it was cash,” I’m going to pretend I didn’t hear that. As I mentioned above, Bob has 2 options:

1. CDN$110 (the amount he actually received)

2. Using the link above I see that the Bank of Canada average annual exchange rate is 0.99958008. I MULTIPLY this by the amount of foreign currency Bob received:

0.99958008 X US$100  = CDN$99.96

When it comes to income on your tax return, small is good! So Uncle Bob would be better off with option 2.

CRA is perfectly willing to accept reasonable estimations when it comes to foreign currency, but try not to get too creative.

 

January 3, 2013 - Posted by | Running Your Business, tax | , , , , , ,

2 Comments »

  1. I think you did the calculation wrong.

    0.99958008 X US$100 = CDN$109.89

    A savings of $0.11. But still, the argument is correct and some years it makes more difference depending on the exchange rates.

    Steve

    Comment by Steve | April 22, 2013 | Reply

    • Thanks for taking the time to comment Steve. I make my share of calculation errors and like it when people correct me because everyone benefits. But this time, it looks like 0.99958008 X 100 = 99.96 🙂

      Comment by -- | April 22, 2013 | Reply


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