How to use of FX Income Worksheet from Interactive Brokers to file Canada individual tax return

I have been an Interactive Brokers (IB) client for more than a decade, but it was never clear to me how I should use FX Income Worksheet they issue for tax return in Canada. IB doesn't have an official guide on it. If you seach online, you will find all kind of discussions, but there isn't a firm conclusion that people can reach. Recently I did some research and finally figured out what is involved and what should be done when filing the tax return.

The short answer is that you should complement T5008 with the FX Income Worksheet to file your tax return. 

IB has this webpage: https://www.interactivebrokers.com/en/support/tax-fxpl.php, but the example on that page is complex and not a lot of people can understand it. That's why I want to use a simple example to illustrate the same idea.

The Scenario

I start with CA$130 in my IB account in 2024. Here’s my four-day journey:

• Day 1: Convert CA$130 to US$100 at 1.3 (US$1 = CA$1.30).
• Day 2: Buy 1 U.S. stock share for US$100 at 1.4 (US$1 = CA$1.40).
• Day 3: Sell the share for US$100 at 1.6 (US$1 = CA$1.60).
• Day 4: Convert US$100 back to CAD at 1.9 (US$1 = CA$1.90).

IB provides a T5008 for the stock trade and an FX Income Worksheet splitting currency gains into two parts. Let’s break it down.

Step 1: The T5008 – Stock Trade Gain

The T5008 covers my stock trade (buy on Day 2, sell on Day 3):

• Proceeds: US$100 × 1.6 = CA$160.
• Adjusted Cost Base (ACB): US$100 × 1.4 = CA$140 (cost at purchase).
• Capital Gain: CA$160 - CA$140 = CA$20.
• Taxable Gain: 50% of $20 = CA$10.

IB reports this in CAD on the T5008, capturing the FX shift from 1.4 to 1.6 within the trade. I’ll enter this in Schedule 3 under "Shares."

Step 2: The FX Income Worksheet – Two Currency Gains

The FX Income Worksheet splits my currency conversions into two transactions:

• FX Transaction 1 (Day 1 to Day 2):
  • Bought US$100 for CA$130 at 1.3.
  • Value at 1.4 (when used) = CA$140.
  • Gain = CA$140 - CA$130 = CA$10 (taxable = CA$5).
• FX Transaction 2 (Day 3 to Day 4):
  • Received US$100 at 1.6 = CA$160 (from stock sale).
  • Sold at 1.9 = CA$190.
  • Gain = CA$190 - CA$160 = CA$30 (taxable = CA$15).

These are capital gains for most investors, reported in Schedule 3 under "Other Property."

Step 3: Avoid Double-Counting

The T5008’s CA$160 proceeds include the FX jump from 1.4 to 1.6, but the FX Worksheet’s second transaction (1.6 to 1.9) is separate. The first FX gain (1.3 to 1.4) occurs before the stock purchase, so it’s distinct too. No overlap here—IB’s split makes it clean.

Step 4: Filing in Tax Software

Using StudioTax:

• T5008: Proceeds = CA$160, ACB = CA$140, Gain = CA$20 (taxable = $10).
• FX Gains (Other Property):
  • "FX Gain 1 (USD/CAD)": Proceeds = CA$10, ACB = $0, Gain = CA$10 (taxable = $5).
  • "FX Gain 2 (USD/CAD)": Proceeds = CA$30, ACB = $0, Gain = CA$30 (taxable = $15).
• Total Taxable Gain: $10 + $5 + $15 = CA$30 (Line 12700 on T1).

Remember that CRA has this rule: "Foreign exchange gains or losses from capital transactions of foreign currencies (that is money) are considered to be capital gains or losses. However, you only have to report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefit return.One takeaway is that even though IB only send T5008 to CRA, but to be fully complient with the tax law, you should complement T5008 with the FX income worksheet to file the tax return. "

The takeaway is that even though IB only send T5008 to CRA, but to be fully complient with the tax law, if your foreign exchange gains or losses are more than $200, you should complement T5008 with the FX income worksheet to file the tax return.

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