Even the big bank discount brokerages mess up sometimes, and RBC Direct Investing’s Summary of Security Dispositions is a perfect example.  Each year, DIY investors unknowingly rely on this summary while preparing their tax returns.  The report is filled with plenty of disclaimers, indemnifying RBC of any errors or omissions contained within.  Fair enough – in some cases, RBC would not have all of the information necessary to accurately track their clients’ book values.  In the case of US-dollar securities, however, it’s as if they couldn’t even be bothered to try.

A former client of our DIY Investor Service (and an RBC Direct Investing client) faxed me a summary of their security dispositions for 2014 (I’ve included the details in the chart below).  It would appear that the client has a $10,238.62 capital gain that they must claim on their 2014 tax return.  After closer inspection, it became apparent that the amounts on the report were quoted in US dollars (which were unacceptable for tax purposes).

 

Summary of Security Dispositions 2014 (US dollars)

SETTLEMENT DATE SECURITY AMOUNT BOOK VALUE GAIN/(LOSS)
January 29, 2014  -325 shares

VANGUARD TOTAL STOCK MARKET ETF (VTI)

 30,754.11 20,515.49 10,238.62

Source:  RBC Direct Investing

 

Now comes the fun part.  The DIY investor would need to compile all of the past transactions for VTI and convert the amounts to Canadian dollars in order to calculate their true capital gain or loss.  Let’s get started…

Don’t judge a book value by its cover

On January 29, 2014, the investor sold 325 shares of VTI for $30,754.11 US dollars.  Using the Bank of Canada noon exchange rate on the settlement date of 0.8946, we can make the adjustment to $34,377.50 Canadian dollars ($30,754.11 ÷ 0.8946).

On October 26, 2011, the investor purchased 2,130 shares of VTI for $134,455.34 US dollars.  Using the same method as above, we adjust the US dollar purchase amount to $135,813.47 Canadian dollars ($134,455.34 ÷ 0.9900).  This gives us a book value per share of $63.76219 Canadian dollars ($135,813.47 ÷ 2,130 shares).  If we multiply this value by the 325 shares that were sold in 2014, we end up with a book value for the transaction of $20,722.71 Canadian dollars ($63.76219 × 325 shares).

 

Transactions for VTI

SETTLEMENT DATE SHARES AMOUNT (USD) 1 CAD -> USD AMOUNT (CAD)
October 26, 2011 +2,130 134,455.34 0.9900 135,813.47
January 29, 2014 -325 30,754.11 0.8946 34,377.50

Sources:  Bank of Canada, RBC Direct Investing

 

After the adjustment, the Canadian dollar proceeds from the sale and book value of the shares sold were $34,377.50 and $20,722.71 respectively.  This resulted in a capital gain of $13,654.79 Canadian dollars.  Without accounting for the adjustment, the investor would have understated their realized capital gain to the Canada Revenue Agency by $3,416.17 Canadian dollars ($13,654.79 – $10,238.62).

 

Summary of Security Dispositions 2014 (Canadian dollars)

SETTLEMENT DATE SECURITY AMOUNT (CAD) BOOK VALUE (CAD) GAIN/(LOSS)
January 29, 2014 -325 shares

VANGUARD TOTAL STOCK MARKET ETF (VTI)

 34,377.50 20,722.71 13,654.79

Sources:  Bank of Canada, RBC Direct Investing

 

I certainly prefer not to jump to conclusions, but I think it’s safe to say that most DIY investors are not making these currency adjustments.  If this is the case, RBC Direct Investing needs to up its game and start helping their clients stay out of trouble with the CRA.