skc
Goldmember
- Joined
- 12 August 2008
- Posts
- 8,277
- Reactions
- 329
I hope you don't trade lean hogs with physcial delivery on settlement anytime soon!
Interactive Brokers
- Thread starter MrMarcus
- Start date
-
- Tags
- interactive brokers
I hope you don't trade lean hogs with physcial delivery on settlement anytime soon!
Just a quick question on the Tax implications of US shares traded through IB. What exchange rate should be used fro the purpose of capital gains. Should i use the exchange rate at the time of the transaction, logically that's what makes sense.
I am bit confused, since my IB account is in AUD, the capital gains are in USD and I have not changed currency so what date should i use or should i use the exchange rate at the end of FY-2013 i.e. 30/06/2013. Since the money is already in USD and i have not converted that to AUD. I may convert at a future date when the exchange rate may be different for which I may in occur loss or further profit depending where the USD goes.
I am bit confused, since my IB account is in AUD, the capital gains are in USD and I have not changed currency so what date should i use or should i use the exchange rate at the end of FY-2013 i.e. 30/06/2013. Since the money is already in USD and i have not converted that to AUD. I may convert at a future date when the exchange rate may be different for which I may in occur loss or further profit depending where the USD goes.
Trembling Hand
Can be found on the bid
- Joined
- 10 June 2007
- Posts
- 8,852
- Reactions
- 204
Would of been better (simpler) to have converted it on Friday. What you now have is a open USD investment. From my understanding your capital gain is calculated at the closing price Saturday morning (share gain/loss + FX gain loss). And will need to be adjusted next tax return at the price you close it out to take into account the FX gain/loss.
I was audited by the ATO a few years ago and thats how we dealt with it, though was trading P & L not capital gains.
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
I'm assuming you are regarded for tax purposes as a trader, not investor.
You convert your cost base (including commission and any other charges) in US dollars to Australian dollars using the exchange rate on the date the BUY transaction occurred. You convert the proceeds in US dollars (less commission and any other charges) to Australian dollars using the exchange rate on the date the SELL transaction occurred. These are the transaction dates, not settlement dates. Your Capital Gain for tax purposes is the difference between these 2 Australian dollar amounts. As for Australian shares, you can use the 50% discount if applicable. It doesn't matter whether you actually converted the proceeds to Australian dollars or not, this is how the CGT calculation is performed. Note that when there is a big difference in the exchange rates between the two dates, you may end up showing a capital loss in Australian dollars even though it is a gain in US dollars or vice versa.
This is the CGT calculation part. There are issues relating to foreign exchange gains and losses regarding when the proceeds are actually repatriated into Australian dollars. For example, if you do not convert the proceeds at the sale date but hold for a few months, then technically you should also calculate foreign exchange gains and losses for tax purposes. So if the proceeds at the sale date for CGT calculation purposes are AUD 10,000 but by the time you actually convert the proceeds say several months later they yield AUD 11,000, you should also include a foreign exchange gain of AUD 1,000 in your tax return. Ditto if you converted to USD a few months prior to buying the US shares, you should calculate any gain/loss between the exchange rate when you converted to USD and that of the share purchase date.
I tend to buy my US shares on margin so I don't normally have that forex issue so you may need to double check the foreign exchange side of things. There is a tax booklet that explains it using examples like that above. However, I am fairly sure about the CGT calculation part as it is something I have spent some time reading up on and is something that changed several years back. There may be averaging provisions applicable when you have high volumes for foreign share trades, but I only do a few dozen per year so it is easy to use the actual exchange rate on the transaction date for those few.
In regards to the exchange rates for the transaction dates, you should be able to find that info on the ATO website. They have daily rates going back several years. Here is a link.
http://www.ato.gov.au/Rates/Foreign-exchange/?default=&page=2#Daily_rates
I think there are exchange rates also available on the IB reports, which may differ slightly from the ATO rates. Since I bought many of the shares before opening an account with IB, I have stuck with the ATO rates for consistency.
Thanks guys for the prompt reply.
I am trading as an Investor and not a trader.
Also I am trading on Margin as well using IB. What will be the exchange rate implications using Margin from IB. My money is in AUD, but i am trading on Margin from IB. How are the profits/loss considered in that case.
Also the exchange rates on the ATO website seems to be wrong, they are different to what is on RBA website which seems similar to other sources i.e. Google finance, Yahoo finance etc.
http://www.rba.gov.au/statistics/hist-exchange-rates/index.html
I am trading as an Investor and not a trader.
Also I am trading on Margin as well using IB. What will be the exchange rate implications using Margin from IB. My money is in AUD, but i am trading on Margin from IB. How are the profits/loss considered in that case.
Also the exchange rates on the ATO website seems to be wrong, they are different to what is on RBA website which seems similar to other sources i.e. Google finance, Yahoo finance etc.
http://www.rba.gov.au/statistics/hist-exchange-rates/index.html
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
Have you actually done trades in US shares with IB or are you asking prior to doing some trades so that you understand the process first? The reason I ask is that when I trade, my US margin balance works independently of my AUD funds. So it is like 2 separate accounts. If I buy say USD10K then my USD balance gets reduced by USD10K. Even if this causes my USD balance to go negative (or if already negative), my AUD balance remains untouched, even if it could cover the negative USD balance if converted. Ditto when I sell US shares. My USD balance is increased by the proceeds. My AUD balance remains unchanged. So CGT calculation is as I have explained, even though nothing has been converted to or from USD. I have to manually do forex trades to convert AUD to USD and vice versa if I want to clear negative balances (e.g. margin) with positive balances in the other currency
If you are already trading and you are saying that the US share purchases and sales are taken from and added to your AUD balance by some sort of automatic currency conversion, then this must be some facility that I am unaware of. To be honest I haven't checked every function that IB offers. In this case the CGT calculation should be just as I explained, but you should be able to use the exchange rates IB used in the auto conversions rather than resorting to ATO or RBA tables (you would calculate the gain based on the AUD amount deducted or added to for the purchase and sale respectively).
I don't think the ATO cares where you get the exchange rates from so long as they are a reliable source and you consistently stick with that same source. I too found the ATO rates different than what I thought they should be. When the USD/AUD rate peaked a few years ago, the papers were saying that the peak was a particular rate yet the ATO figures showed rates that were higher than what the paper said. It may be that some are using intra-day rates and others end of day. I stick with the ATO as they can hardly complain that I should have used something else.
I would be interested to know if you are using an auto conversion facility so that you are only dealing in one currency. It would simplify things a lot for me.
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
I have just taken a look at the RBA data you linked to. It is a far better format than the ATO data. The RBA have 3 years of data in one spreadsheet, with the column representing the currency (e.g. USD, CND) and the rows representing the dates. So you just scroll down looking at the USD column to see the USD/AUD rates for any day in the last 3 years. The ATO tables are very cumbersome. They are in periods of just 1 month and within each table they just show 5 days at a time as columns and 20 or so rows listing the currencies that they offer data on. So if you are interested in the USD rates , you first select the particular month, then you scroll down to the USD row for the first 5 days of that month and see the rates for those 5 days. You then must skip down 20 or so rows to get the next 5 days for the USD. For the following month's data, you have to select another table. Very badly constructed.
Thanks for the detailed reply.
I have been trading for the last financial year in a manner that you have explained, maybe around 10 transactions a month. There is no auto conversion process. They work like 2 separate accounts like you have mentioned. I don't do any forex trades so the USD balances increases or reduces depending if i made a capital gain or loss. The problem i face here is that if and when i eventually convert the balance from USD to AUD there maybe a forex gain/loss, which will be hard for me to determine. I can determine that if i keep record of each and every gain/loss i made in USD and what exchange rate was used at that time. As i don't intend to convert to AUD anytime soon, it may be few years if i convert.
About the capital gain, i have a calculation below, where say i bought some shares for USD 1000 when the exchange rate was 1.05 and i sold them for 1200 USD when the exchange rate was .95 and i made a gain of AUD 311
USD X rate AUD
1000 1.05 952
1200 0.95 1263
Gain 311
Since in our case i.e. using IB margin trading there is no conversion, we essentially made a profit of USD200 which is gain of AUD 210.53 @ a rate of 0.95. So using the 2 methods there is a difference of AUD 100. Logically the second methods is the right one, as there is no forex conversion involved. Legally i don't know which is right.
Trembling Hand
Can be found on the bid
- Joined
- 10 June 2007
- Posts
- 8,852
- Reactions
- 204
Why don't you just convert it back to AUD at the end of the fin year and stop making it so complex and dragged out over years?
Why don't you just convert it back to AUD at the end of the fin year and stop making it so complex and dragged out over years?
Why even do that? IB does the P/L conversion to the base currency without actually converting it.
Trembling Hand
Can be found on the bid
- Joined
- 10 June 2007
- Posts
- 8,852
- Reactions
- 204
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
Yes, that is one of the things I alluded to in my first post. Not only is there a difference, but you could actually show a gain by one method and a loss by the other.
I agree that logically the second seems right, but from all my reading of the tax legislation, you must use the first method (all elements of the capital transaction are translated to Australian currency at the time the transaction occurs, even if there is no actual exchange involved).
I don't have time to research it at right this moment, but if you read this link on the tax office web site and also some of the links down the side, it is apparent that all elements of a tax event are to be translated to AUD at the time of the relevant transaction (which includes the purchase transaction).
http://www.ato.gov.au/Business/Fore...&page=1#What_is_the_general_translation_rule?
Although this is showing under the business section of the ATO, I think that is just because they have restructured the site and it is a complete mess.
If anyone can show me that I am wrong, I would love to know as I find this method cumbersome too.
One of the posters above mentioned that IB calculates the gain in the base currency for you. That should be OK to use so long as it just doesn't calculate the gain in USD first and then convert that using the sell date exchange rate. If it does it as the ATO wants, then there should be no problem. But just because IB reports something in one way, doesn't mean it's the correct way for tax purposes.
BTW, I'm not an accountant although I have studied it for a time, so as always - talk to the ATO or to a professional to be certain.
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
It's just so hard to find information on the ATO website. However, I have come across this. Although it is in a section that is related to how to treat forex gains and losses when there is a difference in the exchange rate between the date of the transaction and the date of the settlement, normally just 3 business days for US shares, and something I think we don't have to worry about because of the 12 Month Rule mentioned in the section, it does give as part of the forex example a calculation of the Capital Gain calculation. The example is consistent with what I have said.
Lisa acquires shares in a US company as a capital investment for a cost of US$15,000 on 1 July 2004 when the exchange rate is A$1.00 = US$0.50. The cost base of the shares to Lisa is A$30,000 (that being the A$ value) at the time of acquisition of what Lisa is required to pay for the shares. This falls under item 5 of the table in subsection 960-50(6).
On 1 March 2005 Lisa enters into a contract to sell the shares for US$20,000 when the exchange rate is A$1.00 = US$0.60. The capital proceeds for the disposal of the shares on that date is equivalent to A$33,333 (that being the A$ value) at the time of sale of the amount Lisa is entitled to receive under item 5 of the table in subsection 960-50(6).
Settlement of this contract occurs on 15 March 2005 when Lisa receives the sale proceeds at an exchange rate of A$1.00 = US$0.62.
Lisa makes a gain of A$3,333 on the disposal of the shares ($33,333 - $30,000). That gain is attributable to a change in the value of the shares in the US company which falls under the CGT rules in Parts 3-1 and 3-3, and not the foreign exchange (forex) measures.
If Lisa had calculated the gain for tax purposes by the method hawamahal thought was most logical, the result would have been quite different. Purchase price USD15,000, sale price USD$20,000, therefore gain is USD5,000. Exchange rate at sale date: A$1.00 = US$0.60. Therefore Gain in USD would be AUD8,333. This is significantly different to the AUD3,333 that she reports for tax purposes using the ATO method.
The above example is taken from this ATO link: http://www.ato.gov.au/Business/Fore...(forex)--foreign-currency-denominated-shares/
For those who want to check the legislation behind the above example, you can look at the following. In the example, when translating both the purchase and sale transactions to AUD, it refers to item 5 of the table in subsection 960-50(6). This just states: the amount or value is to be translated, for the purposes of Part 3-1 or 3-3, to Australian currency at the exchange rate applicable at the time of the transaction or event.. If you then go to the Tax Assessment Act and look up Part 3-1 and 3-3, you will see that those parts are where the Tax Act deals with Capital Gains Tax.
As mentioned above, this section from which the example is taken is about forex gains and losses, not about capital gains, though the example is obviously answering hawamahal's question. For those interested, the section is specifically addressing the issue of how to treat forex gains and losses between the transaction date (for purchases, the day you bought the shares and became the owner, which is also the date used for CGT calculations) and the settlement date (when you had to make the payment). Since these can be several days apart, you could technically have a forex gain or loss depending on how the exchange rate moved. Similarly you could have a forex gain or loss when you sell because of the few days between the date of the sell transaction (which is what you use for CGT calculations) and the date you actually receive the proceeds in the foreign currency. The gist of the section is that you don't have to worry about accounting for those forex gains or losses so long as you have NOT opted out of the 12 month rule.
This is the relevant part from the above link
Short-term transactions - the 12 month rule
The 12 month rule (also known as the short-term rule) generally provides that the forex measures do not apply to forex realisation gains and losses on the acquisition or disposal of capital assets where the time between that acquisition or disposal, and the due time for payment, is not more than 12 months. Such gains and losses are effectively folded into the CGT treatment of the assets. For more information refer to Foreign exchange (forex): the 12 month rule.
However, where a taxpayer has made a valid election out of the 12 month rule within the required timeframe, the 12 month rule will not apply. For more information refer to Foreign exchange (forex): election out of the 12 month rule.
One aspect I haven't dealt with and is something I have never really looked at is in relation to the cash balance (positive or negative) of your USD account (or other foreign currency) with IB. Do you report any foreign exchange gains or losses on currency movements and when do you calculate them (for example, at the end of each tax year or only when repatriated into Australian currency?). If anyone can throw some light on that it would be appreciated.
Lisa acquires shares in a US company as a capital investment for a cost of US$15,000 on 1 July 2004 when the exchange rate is A$1.00 = US$0.50. The cost base of the shares to Lisa is A$30,000 (that being the A$ value) at the time of acquisition of what Lisa is required to pay for the shares. This falls under item 5 of the table in subsection 960-50(6).
On 1 March 2005 Lisa enters into a contract to sell the shares for US$20,000 when the exchange rate is A$1.00 = US$0.60. The capital proceeds for the disposal of the shares on that date is equivalent to A$33,333 (that being the A$ value) at the time of sale of the amount Lisa is entitled to receive under item 5 of the table in subsection 960-50(6).
Settlement of this contract occurs on 15 March 2005 when Lisa receives the sale proceeds at an exchange rate of A$1.00 = US$0.62.
Lisa makes a gain of A$3,333 on the disposal of the shares ($33,333 - $30,000). That gain is attributable to a change in the value of the shares in the US company which falls under the CGT rules in Parts 3-1 and 3-3, and not the foreign exchange (forex) measures.
If Lisa had calculated the gain for tax purposes by the method hawamahal thought was most logical, the result would have been quite different. Purchase price USD15,000, sale price USD$20,000, therefore gain is USD5,000. Exchange rate at sale date: A$1.00 = US$0.60. Therefore Gain in USD would be AUD8,333. This is significantly different to the AUD3,333 that she reports for tax purposes using the ATO method.
The above example is taken from this ATO link: http://www.ato.gov.au/Business/Fore...(forex)--foreign-currency-denominated-shares/
For those who want to check the legislation behind the above example, you can look at the following. In the example, when translating both the purchase and sale transactions to AUD, it refers to item 5 of the table in subsection 960-50(6). This just states: the amount or value is to be translated, for the purposes of Part 3-1 or 3-3, to Australian currency at the exchange rate applicable at the time of the transaction or event.. If you then go to the Tax Assessment Act and look up Part 3-1 and 3-3, you will see that those parts are where the Tax Act deals with Capital Gains Tax.
As mentioned above, this section from which the example is taken is about forex gains and losses, not about capital gains, though the example is obviously answering hawamahal's question. For those interested, the section is specifically addressing the issue of how to treat forex gains and losses between the transaction date (for purchases, the day you bought the shares and became the owner, which is also the date used for CGT calculations) and the settlement date (when you had to make the payment). Since these can be several days apart, you could technically have a forex gain or loss depending on how the exchange rate moved. Similarly you could have a forex gain or loss when you sell because of the few days between the date of the sell transaction (which is what you use for CGT calculations) and the date you actually receive the proceeds in the foreign currency. The gist of the section is that you don't have to worry about accounting for those forex gains or losses so long as you have NOT opted out of the 12 month rule.
This is the relevant part from the above link
Short-term transactions - the 12 month rule
The 12 month rule (also known as the short-term rule) generally provides that the forex measures do not apply to forex realisation gains and losses on the acquisition or disposal of capital assets where the time between that acquisition or disposal, and the due time for payment, is not more than 12 months. Such gains and losses are effectively folded into the CGT treatment of the assets. For more information refer to Foreign exchange (forex): the 12 month rule.
However, where a taxpayer has made a valid election out of the 12 month rule within the required timeframe, the 12 month rule will not apply. For more information refer to Foreign exchange (forex): election out of the 12 month rule.
One aspect I haven't dealt with and is something I have never really looked at is in relation to the cash balance (positive or negative) of your USD account (or other foreign currency) with IB. Do you report any foreign exchange gains or losses on currency movements and when do you calculate them (for example, at the end of each tax year or only when repatriated into Australian currency?). If anyone can throw some light on that it would be appreciated.
- Joined
- 18 September 2008
- Posts
- 4,041
- Reactions
- 1,185
I quite concerned about the tax treatment of foreign shares in IB accounts, particularly with a falling exchange rate. The calculation method is clear, but the implications are worrying.
Here is the scenario......
I have a USD balance of USD0 at the beginning to the tax year. On September 1 (say), I buy 1000 XYZ shares at 1USD each (the exchange rate that day 1AUD = 1USD). On April 30 I sell the 1000 XYZ for 1USD each (no change in price), but the exchange rate has fallen to 1AUD=0.50USD). From the previous discussion we know that the CGT amount is (AUD2,000 - AUD1,000) or AUD1,000 on which I must pay tax. However, my USD account with IB has gone from USD0 to -USD1,000 to USD0. In other words I am no better off than when I started, but have a tax liability due to the CGT.
There must be a way to account for the forex loss that caused me to end up with 0.
Up to now I haven't bothered with this issue, but I can see where it will be a problem when the Aussie dollar is falling.
Thoughts?
Here is the scenario......
I have a USD balance of USD0 at the beginning to the tax year. On September 1 (say), I buy 1000 XYZ shares at 1USD each (the exchange rate that day 1AUD = 1USD). On April 30 I sell the 1000 XYZ for 1USD each (no change in price), but the exchange rate has fallen to 1AUD=0.50USD). From the previous discussion we know that the CGT amount is (AUD2,000 - AUD1,000) or AUD1,000 on which I must pay tax. However, my USD account with IB has gone from USD0 to -USD1,000 to USD0. In other words I am no better off than when I started, but have a tax liability due to the CGT.
There must be a way to account for the forex loss that caused me to end up with 0.
Up to now I haven't bothered with this issue, but I can see where it will be a problem when the Aussie dollar is falling.
Thoughts?
Thanks for all efforts in finding answers to my queries. Highly appreciated.
About the scenario you posted above, I had few positions like that where i made a loss in my usd balance yet as per the ato method, i made a profit. shares bought in apr when the market was high and the aud was high, but then i sold them in Jun at a loss in USD terms, but as per ato method, i actually made a profit.
saying that there were a lot of other trades where i benefited due to the falling aud as well.
I believe that all these forex loss/gain can be claimed as forex loss/profit. I read somewhere on the ato website on that.
Ay guys,
Can som1 please explain the US options fees to me? I'm a tad confused after I got slugged with a 10% round trip fee last night on my options.
I'd rather not trade at all.
My trade yesterday morning on AUZ was only a 2% round trip fee.
Can som1 explain the commish to me, I was trying to work it out and it says, say commission 75....150
How do I get the cheaper one? I'm not paying 10% fee for trading. That is an outrage.
I just checked & it appeared to slightly go down with volume.
Still that is roughly 8% A tad steep.
Buy 300 XOM 19/7/13 $87.5.... commish 144 ... 474 474?
Thanks is advanced for any help.
Can som1 please explain the US options fees to me? I'm a tad confused after I got slugged with a 10% round trip fee last night on my options.
I'd rather not trade at all.
My trade yesterday morning on AUZ was only a 2% round trip fee.
Can som1 explain the commish to me, I was trying to work it out and it says, say commission 75....150
How do I get the cheaper one? I'm not paying 10% fee for trading. That is an outrage.
I just checked & it appeared to slightly go down with volume.
Still that is roughly 8% A tad steep.
Buy 300 XOM 19/7/13 $87.5.... commish 144 ... 474 474?
Thanks is advanced for any help.
- Joined
- 9 September 2012
- Posts
- 9
- Reactions
- 0
Question about using Ninja Trader with an IB Master/Advisor Account.
If I trade directly through IB I can use allocation group "all" to hit all my accounts at once as a single group (family trust + smsf etc) throughout the trade management process.
But NT doesn't understand the IB concept of allocation groups (NT has its own concept of allocation groups that is quite different to the idea of a master account that can trade across a collection of subsidiary accounts as though they were one logical consolidated account).
So while I'm interested in NT, the question is what happens when you fire an order out of NT into an IB master/advisor account (that order won't specify an account group allocation since NT doesn't understand that concept)?
Does IB accept the order without the allocation info attached?
What account/account group does it apply the order to?
Or, does it try to execute the order directly against the master account itself (the master account being a more-or-less unfunded account)?
???
If I trade directly through IB I can use allocation group "all" to hit all my accounts at once as a single group (family trust + smsf etc) throughout the trade management process.
But NT doesn't understand the IB concept of allocation groups (NT has its own concept of allocation groups that is quite different to the idea of a master account that can trade across a collection of subsidiary accounts as though they were one logical consolidated account).
So while I'm interested in NT, the question is what happens when you fire an order out of NT into an IB master/advisor account (that order won't specify an account group allocation since NT doesn't understand that concept)?
Does IB accept the order without the allocation info attached?
What account/account group does it apply the order to?
Or, does it try to execute the order directly against the master account itself (the master account being a more-or-less unfunded account)?
???
Out of curiosity, when you sign up for an IB account. Do you get access to all of IB's products on the one account?
ie - you sign up, and you can access Futures, CFD's, Stocks etc etc.
Or must you individually sign up for each product you want?
Also, is it all contained on the one portfolio or do they separate them into the corresponding groups?
ie - you sign up, and you can access Futures, CFD's, Stocks etc etc.
Or must you individually sign up for each product you want?
Also, is it all contained on the one portfolio or do they separate them into the corresponding groups?
Yes, you choose all the products you want when you sign up, and if you want to add or remove products you can do so anytime once your account is open. When I added kospi permissions to my account it only took a day to gain permission for example.
