- A strong loonie is always a favorite of Canadians, especially when it comes to cross-border shopping. But there could be greater implications when it comes to your personal finances. Chris Gandhu is a High Net Worth Planner with TD Wealth. He joins us from Calgary. Chris, always great to hear you.
We were just talking about the fact that the loonie, the stronger loonie, could be here for a little longer. But there are some real benefits for Canadians when they think about what it could mean, timing of purchases, things like that. So let's just start with that. When it comes to purchasing, what are the kinds of things that Canadians should be thinking about?
- Right. Well, Kim, always good to be here. Kim, the most obvious and tangible benefit is cross-border shopping. And despite the fact that maybe the border isn't fully open, but with the proliferation of e-commerce, cross-border shopping is now simply a swipe or a mouse click away. And the stronger dollar is certainly going to help with the bottom line there.
In fact, I would say that cross-border shopping isn't necessarily even limited to the consumers. Where we think about businesses that are purchasing in the US, well, their input cost is going to be lower because of a stronger dollar. And that likely means a more profitable bottom line. Or perhaps they're going to pass on some of those savings to the Canadian end users, the Canadian consumers-- maybe a bit of both. In fact, we have many clients that are business owners looking to expand into the US. So if you happen to want to buy up a competitor, now's a great time to do that.
Hm, interesting-- it's a good time to put the loonie to work in terms of buying things. But I'm going to expect the opposite is true if you're an exporter. It's going to get a bit tougher.
- Yeah, you're right. I mean there are two sides to this FX coin, and that's exactly it. If your sales happen to be in US dollars, you are going to recognize lower revenues once you convert those US dollar sales into Canadian. Now, typically a business would mitigate against this by entering into some sort of a foreign exchange hedging strategy. And if your viewers believe that the volatility in the Canada-US foreign exchange is here to stay, that's still an avenue that they could pursue.
- Hm. Let's go back to the purchasing side of things. And I know I've talked to a lot of people-- strong loonie, and of course, real estate did a bit of a dip. And of course, it's gone back up. But is this a good time for Canadians to be thinking about purchasing US real estate?
- Right. I mean, if you want your place in the sun, and you're looking to the re-opening happening, that maybe this winter you'll spend a few months down south, this probably is a decent time, simply because your purchasing power is maybe 15% to 20% higher than it was about a year ago. Now, just a couple of words of caution on that-- and this is not to detract anybody from purchasing US real estate. But understand that once you become an owner of US real property, if you're renting it and earning income, you likely have a US filing obligation. In fact, not likely-- you will.
If you happen to own US real property, buy it, and then sell it, flip it, maybe for a gain, you're going to have US tax filing obligations. And if you end up owning it, and you die owning it, you may also have a US death tax filing obligation. So again, none of these may be obstacles that can't be overcome-- just a word of caution that pre-plan and go in with your eyes open.
- Yeah, material considerations come with opportunities, and you need to think them through. What about the opposite? And this really isn't a currency question, I guess, but if you think this might be a good time to sell. And with all the uncertainty, real estate prices have gone up, that might be opportunistic, as well.
- Yeah, for sure. I mean if that's what works for you, absolutely. Now, selling when the Canadian dollar is high probably means a couple of things for you, you as a US real property owner. Of course, as I just told, you have to report that sale in the US. So you'll file in the US, report any gain or loss there.
Now, because you're a Canadian tax resident, you still have that dual-filing obligation. You must also report that sale in Canada. Now, depending on when you purchase that property and the relevant foreign exchange in effect at the time of the purchase, that'll be your cost base. But you'll have to use a current foreign exchange to report your fair value sale in Canadian dollars today.
So this may lead to a gain that's smaller than the US gain. It may lead to gain in Canada, a capital gain that's larger than the US gain. Of course, with a smaller gain, that's great. We'll take less gain any day. But if the Canadian gain is larger than the US, that simply means that the US foreign tax credit won't simply eliminate the Canadian tax-- so again, something to pre-plan for with your tax advisor ahead of the sale.
- Hm, very interesting, Chris-- such a pleasure. Thanks so much.
- Thank you, Kim.