Capital Gain Tax Issue. Use of Losses on a Loan to Purchase Foreign Shares

ID@THEWIDOWS

Just wondering, I obtained a loan to purchase shares in a foreign jurisdiction. The shares made a gain and I am wondering would I be able to offset the Foreign Exchange Losss incurred on the loan against the gain the sale of the shares.

I am an individual, not a company and cant seem to pinpoint where in the Tax Consolidation Act I would receive an aswer in relation to same. All help greatly accepted.

barneystinson

ID@THEWIDOWS wrote: »

Just wondering, I obtained a loan to purchase shares in a foreign jurisdiction. The shares made a gain and I am wondering would I be able to offset the Foreign Exchange Losss incurred on the loan against the gain the sale of the shares.

I am an individual, not a company and cant seem to pinpoint where in the Tax Consolidation Act I would receive an aswer in relation to same. All help greatly accepted.

How you financed the purchase of the shares is irrelevant for CGT purposes. You bought shares, they had a cost in Euros the day you bought them.

Then you sold shares, and if the receipt wasn't in Euros you should be able to convert to Euros at that date.

The difference is your gain.

nompere

barneystinson wrote: »

How you financed the purchase of the shares is irrelevant for CGT purposes. You bought shares, they had a cost in Euros the day you bought them.

Then you sold shares, and if the receipt wasn't in Euros you should be able to convert to Euros at that date.

The difference is your gain.

I have to disagree. Foreign currency is a chargeable asset - so if the foreign currency transactions gave rise to a loss then that loss is available to set against the gain that might arise on the disposal of other assets.

Heisenburg81

nompere wrote: »

I have to disagree. Foreign currency is a chargeable asset - so if the foreign currency transactions gave rise to a loss then that loss is available to set against the gain that might arise on the disposal of other assets.

But, an FX gain arising where currency is exchanged further to the discharge of a loan is exempt, so by the same rationale would a loss occuring on settling a loan be disallowed.

nompere

Heisenburg81 wrote: »

But, an FX gain arising where currency is exchanged further to the discharge of a loan is exempt, so by the same rationale would a loss occuring on settling a loan be disallowed.

This is what Revenue say about foreign currency transactions, except for those arising in the course of trading: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-01-14a.pdf

The OP isn't looking at trading.

barneystinson

nompere wrote: »

This is what Revenue say about foreign currency transactions, except for those arising in the course of trading: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-01-14a.pdf

The OP isn't looking at trading.

Ok so walk me through it:

OP draws down a loan in FX for the property purchase. Funds most likely only his account for days, if even that, so unlikely there's a material CGT event on FX there.

All his other transactions in paying off a loan denominated in FX are him paying a € amount to acquire/convert to FX and transfer to the loan account.

I'm not clear where any losses from disposals of FX arise?

Heisenburg81

nompere wrote: »

This is what Revenue say about foreign currency transactions, except for those arising in the course of trading: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-01-14a.pdf

The OP isn't looking at trading.

Doesnt have to be trading.
If an fx gain arose on the repayment of a debt a charge to CGT doesnt arise.

Mr. Incognito

The question is a bit illogical.

Asset is worth x when purchased.

Asset is worth y when sold.

If its a loss then that loss is available as a capital loss against other gains.

Op is asking if foeign exchange loss incurred on loan is capital loss.

I.e signed loan for 100 a month in dollars. Converted the repayments became less and less.

The answer is no. A debt being repaid is not a capital sum.

dogsears

Capital gains (or losses) arise on disposal of assets. The foreign currency loan is a liability. Hence the loss arising is not allowable.

nompere

barneystinson wrote: »

Ok so walk me through it:

Let's walk through a series of transactions.

1) On 1 April 2016 I agree a loan of 1,000 Mbongoland bolos. I go into the bank and come out with a 200 Mb 5 notes. That’s the acquisition of foreign currency. On 1 April 2016 the exchange rate is Mb1 = €1.

2) On 2 April 2016 I take my Mb1,000 and buy 1,000 shares in Bank of Mbongoland plc. I have disposed of my foreign currency. On 2 April 2016, after a run on the currency, the exchange rate is Mb1 = €0.75. So the sale proceeds of my Mb1,000 are €750. I’ve made a loss of €250. My shares in BoM have cost me €750.

3) On 1 April 2017 I sell my shares in BoM for Mb2,000. The exchange rate on 1 April 2017 is Mb1 = €1.50. So my shares cost €750 and I’ve sold them for €3,000. I’ve made a profit of €2,250. I now have another fistful of Mb notes, so that’s another acquisition of foreign currency.

4) On 2 April 2017 I take my Mb notes into the bank and use half of them to pay off my loan. The exchange rate is Mb1 = €2.00. So I’ve disposed of Mb1,000 with a value of €2,000 that cost me €1,500. I’ve made a profit of €500, I’ve paid off my loan, and I still have Mb1,000 in my hand.

5) Overall I’ve made profits, chargeable to CGT, of €2,750 and I have a loss of €250 carried forward from 2016, so that I’m taxable on €2,500.

6) In my wallet I have Mb1,000 that cost me €1,500, that are worth €2,000. When I sell them there will be another gain or loss arising.

barneystinson

nompere wrote: »

Let's walk through a series of transactions.

1) On 1 April 2016 I agree a loan of 1,000 Mbongoland bolos. I go into the bank and come out with a 200 Mb 5 notes. That’s the acquisition of foreign currency. On 1 April 2016 the exchange rate is Mb1 = €1.

2) On 2 April 2016 I take my Mb1,000 and buy 1,000 shares in Bank of Mbongoland plc. I have disposed of my foreign currency. On 2 April 2016, after a run on the currency, the exchange rate is Mb1 = €0.75. So the sale proceeds of my Mb1,000 are €750. I’ve made a loss of €250. My shares in BoM have cost me €750.

3) On 1 April 2017 I sell my shares in BoM for Mb2,000. The exchange rate on 1 April 2017 is Mb1 = €1.50. So my shares cost €750 and I’ve sold them for €3,000. I’ve made a profit of €2,250. I now have another fistful of Mb notes, so that’s another acquisition of foreign currency.

4) On 2 April 2017 I take my Mb notes into the bank and use half of them to pay off my loan. The exchange rate is Mb1 = €2.00. So I’ve disposed of Mb1,000 with a value of €2,000 that cost me €1,500. I’ve made a profit of €500, I’ve paid off my loan, and I still have Mb1,000 in my hand.

5) Overall I’ve made profits, chargeable to CGT, of €2,750 and I have a loss of €250 carried forward from 2016, so that I’m taxable on €2,500.

6) In my wallet I have Mb1,000 that cost me €1,500, that are worth €2,000. When I sell them there will be another gain or loss arising.

Fair play if you can glean that from the OP.

I thought he just drew down a loan to buy property, in and out.

mBish, mBash, mBongo