Author Topic: Calculating CGT on USA shares.  (Read 108 times)

Orca

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Calculating CGT on USA shares.
« on: August 17, 2017, 04:40:56 pm »
This sprung into my head today. When selling your US shares do you take exchange rate depreciation/appreciation into account or just use the gain in $ and multiply it by the bank rate on the day you sell?
It can vary by a huge amount.
« Last Edit: August 17, 2017, 06:15:08 pm by Orca »
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Orca

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Re: Calculating CGT on USA shares.
« Reply #1 on: August 17, 2017, 06:33:41 pm »
Never mind. Found out for myself.

For an individual investor like us.

If you buy 100 Microsoft shares for $1 each and sell them 3 years later at $2 then your gain is $100.00.
Your "buy" and "sell" must be calculated in $ terms and then the FX rate at the "sell" date must be used to convert it to the zar gain.

For companies and trusts.

If they buy 100 Microsoft shares for $1 each then the base cost must be converted to zar on the date of the purchase.
When they sell they must convert the $ to zar again. The zar difference will be their gain.

So it seems that the appreciation or depreciation of the currency will only affect companies and trusts.
This may be a huge knock for some if I read it correct.

 
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gcr

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Re: Calculating CGT on USA shares.
« Reply #2 on: August 17, 2017, 08:29:36 pm »
Surely the same principles would apply with the Reits which are invested in the British market hence SA Reit showing such alarming reductions in share prices
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Orca

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Re: Calculating CGT on USA shares.
« Reply #3 on: August 17, 2017, 09:38:35 pm »
https://www.moneyweb.co.za/investing/offshore-investing/the-tax-implications-of-emigrating/
Question:
Will capital gains on my offshore investments, denominated in US dollars, be calculated on (a) the pure capital gain in dollar
terms only multiplied by the current exchange rate or (b) the pure capital gain plus any exchange rate depreciation since the
investment was made?

Answer:
On the question of your shares, while the rules that apply to the calculation of capital gains tax on the disposal of local currency
assets are relatively well understood, they are less so when it comes to the disposal of foreign currency assets. Such a disposal is
basically subject to two rules:

Firstly, in the case of a natural person or non-trading trust disposing of an asset in a foreign currency after having acquired that
asset in the same currency, the capital gain or loss will be determined in the relevant foreign currency, followed by a conversion
to rand.

Example 1 (natural person or non-trading trust):

Base cost: 100 Microsoft shares purchased at $1 = $100

Proceeds/deemed disposal (ceasing to be a resident is treated as a deemed disposal): 100 Microsoft shares at current market price
of $2 per share = $200.

The gain is therefore $100. This will be converted to rand at either the spot or an average exchange rate, which will equate to
the rand gain or loss.

However, in all other instances the local currency is to be used to translate both the proceeds and the base cost. This applies
to disposals by a company or trust carrying on a trade. It also applies where a natural person or non-trading trust disposes of
an asset in a foreign currency, where the currency of expenditure and currency of proceeds are not the same.

Therefore the base cost as well as the proceeds will have to be converted to rand and the difference will equate to the capital
gain or loss. The exchange rate fluctuations from the date of acquisition to the date of disposal will therefore be taken into
account.

Example 2 (company or trust carrying on a trade):

Base cost: 100 Microsoft shares purchased at $1 = $100. This will be converted to rand at either the spot or the average exchange
rate, which will equate to a rand base cost.

Proceeds/Deemed disposal (ceasing to be a resident is treated as a deemed disposal)
100 Microsoft shares at current market price of $2 = $200.
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Patrick

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Re: Calculating CGT on USA shares.
« Reply #4 on: August 18, 2017, 11:47:39 am »
This article gives a good writeup on the potential hazards/benefits. Note that it's a benefit if the rand weakens in the long term.
Quote
Foreign shares are acquired for $1 million when the spot rate is R10/$. The shares are later sold for $1.5 million when the spot rate is R8/$ (i.e. the rand strengthened). The gain amounts to $500,000 which, for tax purposes, is converted at R8/$. Hence, the capital gain on the sale is R4 million ($ 500 000 x R8). However, the commercial gain is actually only R2 million [proceeds of R12 million ($1.5 million x R8) cost of R10 million ($1 million x R10)].

By the same token, investors can reap extra rewards from currency gains.

Taking the same example but with a spot rate equal to R8/$ when the shares were bought and R10/$ when they are disposed of, results in a commercial gain of R7 million and a capital gain for tax purposes of R5 million. The amount not taxed is the difference between the exchange rate and the cost of the shares in foreign currency [$ 1 million x (R10 R8) = R2 million].
https://www.moneyweb.co.za/mymoney/moneyweb-tax/direct-offshore-investment-tax-need-know/

I did an article on CGT a while back, and this was the same as I found. The basic rule is that if you invest offshore and the rand weakens while you do, you'll be sitting pretty compared to someone who invested in the same thing but in Rand.

Orca

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Re: Calculating CGT on USA shares.
« Reply #5 on: August 18, 2017, 02:00:20 pm »
I posed the question to Just One Lap and an unsigned reply came back within 3 minutes. The person said that the investment in $ must be converted to zar. ie, the base cost, purchase cost and gain must be converted to zar.

Then I found the SAIT website that explains how the Paragraph 43 of the 8th schedule works and sent it to them. Not heard back as I'm sure they are looking into it and we will have a podcast on this soon.

http://www.thesait.org.za/news/309334/The-Tax-Implications-of-Currency-Gains-made-on-Foreign-Investments-.htm
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Patrick

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Re: Calculating CGT on USA shares.
« Reply #6 on: August 18, 2017, 02:13:14 pm »
I'll be intersted to hear their take. According to this article which says the law changed in 2011, you only need to convert the gain to ZAR: https://www.iol.co.za/personal-finance/investments/cgt-on-foreign-assets-1649441
« Last Edit: August 18, 2017, 04:09:05 pm by Patrick »

Orca

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Re: Calculating CGT on USA shares.
« Reply #7 on: August 18, 2017, 02:50:43 pm »
If this is also applicable to Portugal which I think it is (best international practice) then my tax bill of 12k will be zero. :TU:

My gain was 46k and with this it would be a loss of 9k. A R3 change from buy and sell makes a huge difference.
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Orca

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Re: Calculating CGT on USA shares.
« Reply #8 on: August 18, 2017, 06:11:22 pm »
Oh dear. Other way round. If the rand weakens then your tax liability increases. My gains increased from 12k to 17k.  :wall:

Perhaps I should give my brain a rest and redo it tomorrow. Getting confused now.
« Last Edit: August 18, 2017, 06:14:03 pm by Orca »
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