Re: [GNC] Fwd: Tips for maintining different accounting for different countries?

[Jim DeLaHunt]

Hello, James:

On 2020-05-18 12:54, James Cook wrote:

Thanks, Jim, your responses are helpful.

A couple of follow-up questions about doing cost-basis tracking outside
of GnuCash (either for Jim or for the list):

* When you do cost-basis tracking in a separate spreadsheet, do you have
   a way to reconcile that with what you have in GnuCash, to make sure
   everything's consistent? (I had been hoping to make my life simpler by
   having a single source of truth, though as you point out, my scheme
   may overcomplicate things.)



No I don't. In fact, my cost-basis spreadsheet predates my use of 
GnuCash. And I have done almost no tracking of stocks and lots in 
GnuCash, so I don't now how far GnuCash's capabilities can go. From what 
I've read of the documentation, I suspect that even if I was using 
GnuCash from the start for stock bookkeeping, I would be using a 
separate spreadsheet as well.


The financial advice I got was that there is a difference between 
securities you own when you enter Canada and securities you buy after 
you enter Canada. When you enter Canada, you pick up a second cost base 
for each security, equal to the market price — converted into Canadian 
dollars — of that security on the day of entry. As you sell those 
securities, the Canadian capital gain is based on the Canadian cost 
base, while the foreign capital gain is based on the original foreign 
cost base at time of purchase. This difference was significant for me 
early after my arrival in Canada, with some holdings of my employer's 
stock, and with some stock where I had been reinvesting dividends for 
decades, all outside of GnuCash. My lot-tracking and 
capital-gains-calculating spreadsheet got pretty arcane. Over time, I 
sold those shares, and the capital gains tracking became simpler, and my 
broker did that work.


I suffer greatly from an belief that, because my finances are composed 
of integers (OK, fixed-point numbers) which can have exact sums, they 
should be exact. Over time, I have come to realise that life is too 
short to track everything exactly.  If I can live with what is on my 
statements, and if the tax authorities can live with the returns I filed 
and the taxes I paid, then none of use needs to be sure that all the 
integers were tracked and calculated exactly right.



* I see your point that my scheme is too complicated. But is using
   separate cost-basis spreadsheets simpler than, e.g, using a separate
   set of GnuCash accounts, or even separate GnuCash files if I want to
   keep that stuff really really separate? I guess I'm just wondering
   whether spreadsheets are inherently simpler than GnuCash for some
   accounting tasks.



A lot depends on what you want to track, and how well you can make 
GnuCash accomplish that. See thread /[GNC] Stock "split" exchanging 
shares of different currencies?/ 
 
for a case where GnuCash can't really track a cross-currency stock 
transaction which I had in real life.


I don't have anything to add to the rest of your message. You are 
thinking methodically about your accounting, and you will be able to 
figure out what GnuCash can and cannot do for you. I am confident you 
will get it right eventually, and the little learning experiences you 
have along the way will be your welcome into the cross-border finances 
club. ;-)


Best regards,
  —Jim DeLaHunt
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Re: [GNC] Fwd: Tips for maintining different accounting for different countries?

[James Cook]

> Hello, James:

Thanks, Jim, your responses are helpful.

A couple of follow-up questions about doing cost-basis tracking outside
of GnuCash (either for Jim or for the list):

* When you do cost-basis tracking in a separate spreadsheet, do you have
  a way to reconcile that with what you have in GnuCash, to make sure
  everything's consistent? (I had been hoping to make my life simpler by
  having a single source of truth, though as you point out, my scheme
  may overcomplicate things.)

* I see your point that my scheme is too complicated. But is using
  separate cost-basis spreadsheets simpler than, e.g, using a separate
  set of GnuCash accounts, or even separate GnuCash files if I want to
  keep that stuff really really separate? I guess I'm just wondering
  whether spreadsheets are inherently simpler than GnuCash for some
  accounting tasks.

The rest of my email is just responses; no new questions below this
line.

--

I will look into finding a tax preparer. My employer paid for my 2018
taxes to be done professionally, because that was the year I moved to
Canada and was therefore especially complicated. I was hoping this year
I could just use my 2018 taxes as a template, but there are a couple of
new twists, and after reading your advice I'm reconsidering.

>  > …if I sell a stock, the realized gains for Canada are based on
> adjusted cost
>  > base, but for the US I can decide which instance of the stock I'm
> selling.…
>
> I have done almost all my cost basis tracking outside of GnuCash, in a
> spreadsheet. Consider if this might be the easier way for you also. And,
> remember that you don't have to take advantage of all the complexity
> that the regs permit you.  Why pick specific lots (pro tip, the GnuCash
> docs call them "lots", not "instances") for your sales, instead of using
> a simpler practice like "first-in-first-out" (FIFO)? You are allowed to
> choose to make your life easier.

My concern was that I'm not sure there's a simple way to satisfy both
Canada and the US. Now that you mention it, I guess there's nothing
stopping me from reporting adjusted cost base to the US. That would at
least make my two returns consistent, but I'd have to look into whether
that makes my US return more complicated due to each sell being matched
to multiple buys.

> I recommend turning on GnuCash's currency trading accounts, as described
> in /Trading Accounts/ 
> in the GnuCash wiki. If you find out things which that page does not
> explain well, please edit the page to improve it.

Yes, I found the tutorial when I was trying to figure out what that
GnuCash option did. I had not seen the GnuCash wiki page on it, though,
so thanks for that.

> So, I have six accounts for medical expenses: Medical:Spouse A:CAD,
> Medical:Spouse A:USD, Medical:Spouse B:CAD, Medical:Spouse B:USD,
> Medical:Non-deductible:CAD, and Medical:Non-deductible:USD.  It is easy
> to assign each expense to one of the accounts based on what currency it
> is in, who it is for, and whether it is deductible in both countries or
> not. For one Canadian individual return, I export totals from
> Medical:Spouse A:CAD, Medical:Spouse A:USD. For the other Canadian
> individual return, I export totals from both Medical:Spouse B:…
> accounts. For the US joint return, I export totals from both all four
> Medical:Spouse A:… and Medical:Spouse B:… accounts. If there are
> expenses which are deductible in one country but not the other, I
> haven't discovered them, or they aren't significant enough to be worth
> tracking.

Thanks, that is a helpful example. I'm still considering using my idea
for adjustment accounts rather than an account for every combination
when it comes to situations like this. I think the total number of
accounts would end up being similar with both approaches. Your idea is
probably a bit more practical, but I can't resist trying to design
something that scales linearly (rather than exponentially) with the
number of tax juridictions, even though in practice N=2 or 3 and really
I'd need only 2-3 accounts.

> Finally, don't be afraid to start simple and modify as you go. GnuCash
> lets you easily rename accounts and change the hierarchical structure of
> accounts without losing data. If you decide to merge two accounts, or
> split one account into two, then you need to go through every
> transaction in those accounts and reassign them, but that might be a
> surprisingly tractable task. It certainly doesn't require touching every
> transaction.

This last piece of advice is also really helpful. I was wondering how
important it is to get everything right when I start out, but now I feel
a bit bolder about jumping in.

- James
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Re: [GNC] Fwd: Tips for maintining different accounting for different countries?

[Jim DeLaHunt]

Hello, James:

On 2020-05-16 14:13, James Cook wrote:

I'm thinking of starting to use GnuCash. I need to file both Canada
and US taxes, which require different accounting.… Are there other
ways people handle this sort of thing?



I immigrated to Canada from the USA fifteen years ago, so I have been 
keep multi-currency books and filing both Canadian and US tax returns 
this whole time. Welcome to the club.


Trying to write down everything I've learned about personal accounting 
and taxes in these two countries is beyond the scope of this email. Let 
me quote a few salient snippets of your message, and give you a few 
lessons learned.


> I need to file both Canada and US taxes,…

I have used a tax preparer who specialises in cross-border tax returns 
my entire time here. I think it is foolhardy to attempt to file one's 
own cross-border return unless one is in the cross-border tax prep 
business already, or unless one's situation is very simple. If filing 
taxes in one jurisdiction is X amount of difficulty, filing taxes in two 
jurisdictions is not twice the difficulty, it is X-squared the 
difficulty. There are the US regs, the Canadian regs, the various 
US-Canada tax treaties, the various court rulings for situations not 
covered by the regs, and misguided new tax laws which have unexpected 
consequences for people outside the country, and so on. Let someone else 
learn all that for you.


Once you have a tax preparer, all you have to do is prepare your 
bookkeeping in the form which they can use. Don't ask this list how to 
do your accounting, ask your task preparer.


> …if I sell a stock, the realized gains for Canada are based on 
adjusted cost
> base, but for the US I can decide which instance of the stock I'm 
selling.…


I have done almost all my cost basis tracking outside of GnuCash, in a 
spreadsheet. Consider if this might be the easier way for you also. And, 
remember that you don't have to take advantage of all the complexity 
that the regs permit you.  Why pick specific lots (pro tip, the GnuCash 
docs call them "lots", not "instances") for your sales, instead of using 
a simpler practice like "first-in-first-out" (FIFO)? You are allowed to 
choose to make your life easier.


> I plan to use currency trading accounts as described in Peter 
Selinger's tutorial…


I recommend turning on GnuCash's currency trading accounts, as described 
in /Trading Accounts/  
in the GnuCash wiki. If you find out things which that page does not 
explain well, please edit the page to improve it.


> The plan: have three sets of accounts:
>
> 1. a "main" set that records things in a reasonable way (but
> that might not agree with the US's or Canada's point of view)
>
> 2. a set of "Canada adjustment" accounts, and
>
> 3. a set of "US adjustment" accounts

I do not account this way, and it seems more complex than necessary. 
Just track US dollar accounts and transactions in GnuCash accounts with 
currency set to US dollars, and Canadian dollar accounts and 
transactions in GnuCash accounts with currency set to Canadian dollars. 
Export from GnuCash to a spreadsheet for delivery to your tax preparer. 
Let them deal with converting between currencies.


You are not the first person to file taxes based on finances in multiple 
currencies. There are conventions for handling currency differences. I 
know that for Canada, I download from the Bank of Canada's website a 
reference history of daily USD:CAD exchange rates for the entire year, 
and an official composite single USD:CAD exchange rate for the year. I 
use these rates to convert between USD and CAD amounts as needed, in my 
spreadsheet.


I have solved a lot of problems in multi-jurisdiction accounting through 
granularity in my chart of accounts. For instance, in Canada my spouse 
and I file separate, individual returns, but in the US we file a joint 
return. Both countries let us deduct medical expenses incurred in any 
country, with some limits.


So, I have six accounts for medical expenses: Medical:Spouse A:CAD, 
Medical:Spouse A:USD, Medical:Spouse B:CAD, Medical:Spouse B:USD, 
Medical:Non-deductible:CAD, and Medical:Non-deductible:USD.  It is easy 
to assign each expense to one of the accounts based on what currency it 
is in, who it is for, and whether it is deductible in both countries or 
not. For one Canadian individual return, I export totals from 
Medical:Spouse A:CAD, Medical:Spouse A:USD. For the other Canadian 
individual return, I export totals from both Medical:Spouse B:… 
accounts. For the US joint return, I export totals from both all four 
Medical:Spouse A:… and Medical:Spouse B:… accounts. If there are 
expenses which are deductible in one country but not the other, I 
haven't discovered them, or they aren't significant enough to be worth 
tracking.


Finally, don't be afraid to start simple and modify as you go. GnuCash 
lets you easily rename accounts and change the hierarchical 

[GNC] Fwd: Tips for maintining different accounting for different countries?

[James Cook]

Hi gnucash-user list,

Background:

I'm thinking of starting to use GnuCash. I need to file both Canada
and US taxes, which require different accounting. For example, if I
sell a stock, the realized gains for Canada are based on adjusted cost
base, but for the US I can decide which instance of the stock I'm
selling. I have an idea for how I will handle this, but I'm curious if
others have suggestions. (Also I'm learning about accounting for the
first time, so maybe I'm just excited and wanted to talk.)

Questions:

1. Any problems with the below idea, or ways it could be improved?
2. Are there other ways people handle this sort of thing?

Details:

I haven't used GnuCash yet, but I just read the Getting Started
section and Peter Selinger's tutorial on multiple currency accounting
at https://www.mathstat.dal.ca/~selinger/accounting/tutorial.html . I
don't really know how well the below examples would work with
GnuCash's UI.

I need to report all my income to both US and Canadian tax authorities
(and in some cases, separately, California, but that's beyond the
scope of this email), and they have incompatible rules about how my
accounting should work.

I could maintain two separate accounting files and enter all the
relevant transactions in both, but I think I can make it work with
one.

The plan: have three sets of accounts:

1. a "main" set that records things in a reasonable way (but that
might not agree with the US's or Canada's point of view)

2. a set of "Canada adjustment" accounts, and

3. a set of "US adjustment" accounts

Then every transaction will have a balanced set of splits in the
"main" account, and then possibly more independently balanced splits
in the adjustment accounts, showing how the numbers should change when
it comes time to report taxes for that country. I might create the
transactions in the "main" account at first, and then go back and fill
in the adjustments when tax time is approaching each year

I plan to use currency trading accounts as described in Peter
Selinger's tutorial, except with realized gain/loss only appearing in
the "adjustment" accounts, as in example 2 below.

Any amount reported to Canada will be the "main" amount plus the
"Canada adjustment" amount, and similarly for US.

Examples:

1. I receive a gift of 100 USD to my bank account, worth 110 CAD. This
becomes a single transaction with the following splits:

in "main" set:
* 100 USD debit to bank account
* 100 USD credit to income account
in "Canada adjustment" set:
* 100 USD debit to income account (I should report all my income in CAD)
* 110 CAD credit to income account
* 110 CAD debit and 100 USD debit to trading account
in "US adjustment" set: nothing; the "main" set matches the US point of view

My income for my Canada return is then the sum of the two income
amounts: (100 USD) + (110 CAD - 100 USD) = 110 CAD.

2. I buy stock X for 100 USD (worth 110 CAD) then sell it later for
200 USD (worth 180 CAD). Here, I'll compute the realized gains
separately for Canada and US purposes.

Transaction 1:
in "main" set:
* 100 USD credit from bank account
* 1 X debit to X asset account
* 100 USD debit and 1 X credit to "X trading" account
in "Canada adjustments" set:
* 110 CAD credit and 100 USD credit to "X trading" account (from
Canada's point of view, I spent CAD on the stock)
* 100 USD credit and 110 CAD debit to "USD trading" account. (From
Canada's point of view, I sold some USD to get the CAD I spent on the
stock. I'm ignoring realized gain on USD in this example.)
in "US adjustments" set: nothing; the "main" set is already correct

Transaction 2:
in "main" set:
* 200 USD debit to bank account
* 1 X credit from X asset account
* 200 USD credit and 1 X debit to "X trading" account
in "Canada adjustments" set:
* 110 CAD credit and 200 USD debit to "X trading" account
* 70 CAD credit to "realized gains" account
* 200 USD credit and 180 CAD debit to "USD trading" account
in "US adjustments" set:
* 100 USD debit from "X trading" account
* 100 USD credit to "realized gains" account

3. If I do several buys and sells, with different cost bases for the
sells from the Canada and US points of view, I would compute the
realized gains separately for Canada and the US as in example 2 above.

James
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