Cap gains report and porfolio error in foreign currency investment

Using Money 2004 standard edition (I understand the same applies to Money
2005):

Tax-Capital gains report of an investment in foreign currency shows an
error. I'd appreciate if MVP's can try the recreation of the error and advise
what plans Microsoft Development team has regarding correction of the error.

The error can be recreated as follows:
1: set up a file using CA$ as base currency and an exchange rate of US$1
=CA$1.2
2: set up an investment account in US$
3: 1/Jan/05, buy 1 share of MSFT @ US$100 (exchange rate US$1=CA$1.5
4: 2/Jan/05, sell 1 share of MSFT @ US$100 (exchange rate US$1=CA$1.3
5: Go to Reports-taxes-capital gains and display the capital gains, it will
show:
Capital Gains
Investment account name
01/Jan/05 through 31/12/05
Investment Quantity Date Bought Date Sold Sale Proceeds Purchase Cost
Gain/Loss
MICROSOFT 1 01/01/05 02/01/05 US$108.33 us$125.00 (US$16.67)

This is OBVIOUSLY incorrect, since a report in US$ should show ZERO
gain/loss. The problem is that although the report says it is in US$, in
reality, Money04 converts each transaction using the transaction exchange
rate to C$, then reconverts back to US$ using the master exchange rate from
OPTIONS.


Furthermore, the same method seems to be used for display of PORTFOLIO
values and thus shows the same error.

via_newsgroup
Mon Feb 21 13:21:12 CST 2005

In microsoft.public.money, Frustrated Money User wrote:

>
>This is OBVIOUSLY incorrect, since a report in US$ should show ZERO
>gain/loss. The problem is that although the report says it is in US$, in
> reality, Money04 converts each transaction using the transaction exchange
>rate to C$, then reconverts back to US$ using the master exchange rate from
>OPTIONS.

It is not so obvious to me.

This kind of thing is often based on how tax laws view things. From
the viewpoint of the CRA, would this be zero-gain trade? I don't
know.

From the view of the US IRS if things were reversed, it would not be
a zero-gain trade. I think each trade would be treated as if
converted at then-current exchange rates. That would appear to be
the paradigm that Money is using.

I am not saying how things should be. I am saying that how it should
be treated by Money is not obvious. Trying to apply principles of
logic to matters involving tax law does not always work.

FrustratedMoneyUser
Mon Feb 21 17:23:09 CST 2005

Cal, thanks for picking up the thread.

To answer your question:

If one continues with the example and reports the cap gain transaction of a
US$ account together with a C$ account, you will see that the cap gain of
the US$ transaction is reported in C$ and correctly; i.e. using the exchange
rate at each buy/sell transaction, translates the cost and proceeds into C$
and reports the gain/loss.

Surely there IS NO GAIN or LOSS in my example when reported in the original
foreign currency (i.e. US$). After all, buy 1 share of MSFT @ US$100 then
sell 1 share of MSFT @ US$100, no matter what tax law, there is no gain or
loss in US$. There mayu be gain or loss in another currency (in my case C$)
depending on the exchange rate at time of each transaction. As I mentioned
above, when the report is in C$ (when reporting multiple accounts) it IS
correct.

Please take another look at this.

Thanks



"Cal Learner-- MVP" wrote:

> In microsoft.public.money, Frustrated Money User wrote:
>
> >
> >This is OBVIOUSLY incorrect, since a report in US$ should show ZERO
> >gain/loss. The problem is that although the report says it is in US$, in
> > reality, Money04 converts each transaction using the transaction exchange
> >rate to C$, then reconverts back to US$ using the master exchange rate from
> >OPTIONS.
>
> It is not so obvious to me.
>
> This kind of thing is often based on how tax laws view things. From
> the viewpoint of the CRA, would this be zero-gain trade? I don't
> know.
>
> From the view of the US IRS if things were reversed, it would not be
> a zero-gain trade. I think each trade would be treated as if
> converted at then-current exchange rates. That would appear to be
> the paradigm that Money is using.
>
> I am not saying how things should be. I am saying that how it should
> be treated by Money is not obvious. Trying to apply principles of
> logic to matters involving tax law does not always work.
>
>
>