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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: If I were to use DLR and DLR.U to convert currency then would this trade need to be reported when filing taxes? I'm not sure as there would not be any capital gain or loss (am I right?) If I do need to report the trade then I assume that I could claim the commission as expenses? Please clarify. Thanks in advance.
Read Answer Asked by K on May 15, 2023
Q: Hi 5i team,

I am considering using DLR and DLR.U to buy USD and avoid the higher fees the bank charges to convert CAD to USD. But is it worth the hassle in a non-registered account because you might have a capital gain (or loss) to declare when you file your tax return the following year?

Here is an example. If I were to buy US$10,000 today my bank would charge me C$12,756. 1 CAD = 0.7839 USD

If I buy 1000 shares of DLR @ C$12.69 (plus $9.95 commission) that would cost me C$12,699.95. Five minutes later I sell 1000 shares of DLR.U at US$10.07 (plus US$9.95 commission). The proceeds of disposition would be US$10,060.95.

So US$10,000 using DLR/DLR.U would equate to C$12,624.14. That saves me C$131.86 [12,756 – 12,624.14] compared to buying it directly using the bank’s exchange rate. That is about a 1% savings.

But because this is done in a non-registered account I would have to declare the sale of DLR.U when I file next year’s tax return. From what I know you can use the “average” exchange rate for that year as per CRA, or the exact rate on the day of the transaction. So if I use the exact rate (I am guessing it would be 0.7839 as that is what the bank would charge me) I would have a capital gain of approximately C$131 to declare and then have to pay tax on that gain. At 50% tax bracket, the tax would be ~$33. So the net savings are now ~C$98. Final savings are 0.78% of the transaction. If I use the CRA’s “average” exchange rate for 2021 I could have a gain or a loss depending on what that rate is.

I can see this works fine if you do this in a registered account like an RRSP as you don’t have to declare the gain on the currency exchange, but in a non-registered account this seems like a lot of effort for small savings, at least for US$10K. Perhaps it is worth the hassle if you are converting a much large amount like US$50K, or US$100K.

Am I missing something in my example?

Paul
Read Answer Asked by Paul on August 25, 2021
Q: Hello 5i team, I need to assemble a large amount of U.S. dollars (~$25,000 for an investment near and dear to your hearts). I have used Norbert's Gambit for smaller conversions in the past, which works fine except that I'm sometimes tempted to 'play trader' and to time my transactions to pick up some extra dollars. But for this large transaction, I don't want to mess around. I know I can do the gambit with any interlisted stock, but I would prefer to reduce or eliminate the risk of a price move against me. Can you recommend a good investment vehicle for this purpose? Also, can the buy and sell be done the same day, or do brokers require the first buy trade to settle before I can do the sell on the US side? Thank you!
Read Answer Asked by James on January 26, 2021
Q: Yesterday, I did the Norbert's Gambit for the first time. It went smoothly. Thanks for the Q & A on it.......One learning, ask for the journalizing to be done inter-day as that then allows for DLR.U:CA to be sold shortly after the transaction is done.... I used Scotia iTrade and the result was a 1.6% saving compared to doing it at a bank like RBC........Again thanks for the "tip"....Tom
Read Answer Asked by Tom on June 22, 2020
Q: Good morning - I have owned VUS (CAD hedged US Total Market ETF) for many years in a taxable account. I would like to switch to VTI (the un-hedged version of the same ETF) but would realize a large capital gain. Is there any way an individual could synthetically gain the same USD exposure via a swap or option contract? I would obviously like to avoid high fees to do this. Thanks
Read Answer Asked by Gary on February 27, 2020
Q: Hi Peter/Ryan
Last couple weeks read good information on Q&A section on moving money to US account using DLR/DLR.U. Out of curiosity what happens if I call TD rep and ask him to convert my existing 100 Canadian NTR shares to US NTR shares in RRSP account? I am assuming I will still have 100 NTR shares under US trading account with NYSE listed price at the time of transaction. This way I can keep my US dividends without any transaction cost. If this is the case i should be able to convert any stock which trades in both exchanges. Hope this is not a dumb question. Your expert advice please.
Thanks

Read Answer Asked by S on May 23, 2019
Q: I would like to deploy cash held in my Canadian $ brokerage account on the basis that the Canadian dollar will decline in value in relation to the US dollar. I am considering the purchase of ZTS BMO Short Term US Treasury Bond Index. My premise is that this ETF should be very stable in the value of its holdings but will directly reflect changes in the CDN/US $ ratio. Is this correct?

Other than paying the high bank exchange spread or deploying a Norbert’s Gambit transaction, is there a better way to institute this idea? Is ZTS a suitable ETF for this purpose?
Thanks
David
Read Answer Asked by David on September 20, 2017
Q: Could you recommend an ETF that trades in Canada with Canadian funds that.
A. Invests in US savings accounts and pays some interest
B. Is unhedged
Would this be an effective way to play a possible drop in the Canadian dollar. Is there another way that this could be achieved without the cost of converting dollars?
Read Answer Asked by William on April 26, 2017
Q: I am intending to use DLR & DLR.U for Norbert's Gambit to acquire USD in my account in order to fund the purchase of US equities & avoid the currency exchange fees, which even at Questrade are about 2%. With the anticipated increase in US interest rates in 2017 the USD is expected to increase in relation to the CDN$ so I am considering acquiring a larger amount of USD now which I could use later for either US or CDN equity purchases. Aside from the risk associated with the uncertainty of the relative value of the USD vs CDN$, do you see any negatives with this strategy?
Read Answer Asked by Brian on February 21, 2017