With the 2014 tax deadline looming, this is becoming a very common question from DIY investors. Although there are still a number of uncertainties with regards to filling out the form, an investor with a relatively straight-forward situation should be able to muddle along for now.
If your US-listed Vanguard ETFs had a total cost base of at least $100,000 in Canadian dollars at any time during the 2014 tax year, you need to file Form T1135. Please do not rely on the cost base that your brokerage provides you with (for more information on the errors that your brokerage may be making, please read my recent post, Book Value Blunders).
If you need more information on how to track the cost base of your US-listed ETFS in Canadian dollars, please refer to Calculating Adjusted Cost Base when Purchasing Foreign Currency Securities, at Adjusted Cost Base.ca.
Once you have determined that you are required to file Form T1135, you will also need to calculate any gains and losses realized on the sale of your US-listed ETFs during the 2014 tax year. Regardless of whether you have to file Form T1135, you still need to report these amounts, so hopefully you have been keeping accurate records.
If this is not the case, please refer to our white paper, As Easy as ACB. In the paper, we recommend using the free online resource, Adjusted Cost Base.ca, in order to keep track of your gains and losses for tax purposes.
By clicking on the link below, you will be able to download the T1135 Worksheet for 2014. Any areas in light blue can be filled in by you (all other cells have been protected and should not be tampered with).
Download T1135 Worksheet (2014)
T1135 Worksheet (Sample): 2014
Sources: Canadian Portfolio Manager Blog, Bank of Canada
Using your month-end brokerage statements, tally up the market value of your US-listed ETFs in US dollars. In the example below, the investor held two US-listed ETFs with a total market value in US dollars of $244,451.70. Enter these amounts into the Fair market value (USD) column
Note: If your brokerage statements display the market value of your US-listed ETFs in Canadian dollars, do not use the provided spreadsheet; it is meant to convert US dollar market values into Canadian dollars using the average Bank of Canada exchange rate for the year.
Fair Market Value (USD): December 2014
Source: RBC Direct Investing
If you only receive quarterly statements, this can cause issues with obtaining the missing month-end values of your US-listed ETFs. The Investment Industry Association of Canada has asked CRA to address what an investor should do in this situation – so far there does not appear to be an answer. To be conservative, the investor may decide to estimate the fair market value by multiplying the number of shares held at month-end by the market value of the security at month-end (which is available on Vanguard’s website).
In the example below, the total fair market value in US dollars for the May 2014 month-end is estimated to be $246,492.25.
Estimated Fair Market Value: May 30, 2014
Source: The Vanguard Group
Using your monthly brokerage statements, look for any dividends received during the month (for Vanguard equity ETFs, these are generally paid quarterly). The dividends should be the gross amount (i.e. before foreign withholding taxes). Enter these amounts into the Income (USD) column.
Income (USD): December 2014
Once all of this information has been entered, the worksheet will calculate the following amounts in Canadian dollars that can then reported in section 7 of Form T1135: