FREE FOREIGN ACCOUNT REPORTING SEMINAR - Reporting RRSP in – calculations for form 8891-

QUESTION:
Ok my head is swimming because of this new reporting form and understanding the tax implications of purchases and sales of securities in my RRSP and how to account for this in the form 8891.  

To start off, my wife and I moved from Canada to the US in early 2000 when I was transferred with my job.  At that time we managed to establish book values for the securities in our self directed RRSPs.  Since then we have traded a few stocks and sold and bought some mutual funds all within the RRSPs.  We have not withdrawn anything from these accounts. We do not file Canadian Income Tax.  Both my wife and I are resident aliens (we have green cards) and are starting the process to become US citizens.

Now comes the headache in the form of the 8891 mainly because of exchange rates.   From what I can see there are two possible ways to calculate any capital gain or loss on the sales of a security (stock or mutual fund) for reporting on this form.

OPTION 1:
Calculate the gain or loss in Canadian dollars and then use the exchange rate to translate this to US dollars.  Example:

Buy Security ABC @ $100 Cdn in 2000
Sell Security ABC @ $100 Cdn in 2006
Capital gain = $0 Cdn   FX at time of sale = .87   US capital gain = $0

OR OPTION 2:
Calculate the US value of the stock at the time it was bought, and recalculate the value at the time it was sold.  The difference becomes the capital gain or loss.  Example:

Buy Security ABC @ $100 Cdn in 2000.  FX = .66   US Value = $66
Sell Security ABC @ $100 Cdn in 2006    FX = .87  US Value  = $87
Capital gain to report:  $21 (equivalent to a 32% gain) but this is only due to exchange rate changes.

Which is the correct way to perform the calculation?  Option 1 or Option 2?  (Please tell me it is Option 1)

By the way, I had to file an extension for my US income tax in order to figure this one out.
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david ingram replies:

Option 2 is correct.  Too bad you are not in Vancovuer this weekend,

I am giving a FREE 2 hour seminar on the proper reporting for forms 8891 and TDF-90 at 3:00 PM at the HOLIDAY INN at 711 West Broadway as follows.

I charge $400 for an individual consultation on this subject by phione or in person.  However you are in luck.

Leave Sunday, August 12th open.  I will be conducting a FREE three part seminar on that date at the Holiday Inn at 711 West Broadway in Vancouver..

12 noon to 2:30 PM -    Mortgage Interest as a deduction including Singleton (won), Overs (won), Evans(won)  and Lipson (lost) Cases.

3 PM to 5 PM -    Reporting rules for US persons with Canadian Financial Accoutns and Canadian RRSP accounts.
                           simply put a US citizen with no US income whatsoever is supposed to file a US tax return no matter where they live in the world.
                            More important than that, is the fact that if the US citizen has a Canadian RRSP, it is considered a foreign trust.  Assuming that there is more than
                            $10,000 US in all the US persons foreign accounts, failure to report the foreign trust (RRSP) to the IRS AND the Departmetn of the Ttreasury
                             can result in minimum fines of $10,000 (per foreign account) and maximum fines of $500,000 plus 5 years in jail plus 35% of the money in the
                            RRSP plus 5% for every year not reported.  - O U C H !!!

5:30 to 7:30 PM   US Tax returns - who has to file - aimed at Canadians who have been working in the US and Americans living in Canada or Canadians with
                            rental property in the US on which they are losing money. Snowbirds should attend this as well if they are in the USA more than 120 days a year.

Anyone intending to attend this seminar about mortgage interest or when a Candian has to file a return should read the November 2001 newsletter for mortgage interest and information about what Canadians have to file a US return.  See the November 2001 Newsletter at www.centa.com in the topp left hand box.

If they are a Snowbird, they should read the April 1994 newsletter.

If they are a dual citizen, the Oct 1993 newsletter - These can be found at www.centa.com in the top left hand box. 

Then anyone who is filing both returns should go to the second box down on the right hand side and read the US/Caanda Taxation section.

Print the above out.  Highlight questionable sections and bring them along to the seminar so you remember your questions.
-----------------------------------
Those interested in the mortgage interest as a deduction concept should also read Fraser Smith's, "The Smith Manoeuvre", available at any good bookstore although you may need to have them order it for you.

Phone (604) 731-8900 to register for all or any of the seminar.

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It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when i am out of town. 

However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. As an example, as I write this on June 28th, since June 16th (12 days), my 'spammed out' box has 7,118 unread messages, my deleted box has 2630 I have actually looked at and deleted and I have answerd 63 email questions I have answered for clients and strangers.  I have also put aside 446 messages that I am maybe going to try and answer because they look interesting.

Therefore, if an email is not answered in 24 to 36 hours, it is lost in space.  You can try and resend it but if important, you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321

David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office)
 
 
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
 
David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
 
Just a guideline not etched in stone. 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

David Ingram expert income tax and immigration help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty

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