Your Complete Guide to Index Investing with Dan Bortolotti

Taxable Consequences of Norbert’s Gambit

2017-12-02T23:27:23+00:00February 26th, 2015|Categories: Discount brokers, Foreign currency, Taxes|Tags: , , |81 Comments

Norbert’s gambit with the Horizons US Dollar Currency ETF (DLR/DLR.U) is often the most cost-efficient way to convert Canadian dollars to US dollars, or vice-versa. Our series of white papers focused on performing the gambit in an RRSP, but if you’re swapping currencies in a non-registered account, you should be aware that it can have tax consequences.

At brokerages such as RBC Direct and BMO InvestorLine, you can place the buy and sell trades within minutes of each other. But several other brokerages do not allow you to journal the ETF from the Canadian side of your account to the US side (or the other way around) until the buy trade settles. In both cases, however, there will be at least three business days for the transaction to be complete, and the US-Canadian exchange rate can move significantly during that time. A big swing could stick you with a capital gain or loss when you make the sale.

What’s more, calculating this gain or loss can be tricky, because both the purchase and sale need to be reported in Canadian dollars. That means any transaction in DLR.U needs to be converted from US dollars. For example, if you’re selling DLR.U, you would look up the Bank of Canada exchange rate on the settlement date and use this value to report the proceeds in Canadian dollars. The difference between this amount and your original purchase price is your capital gain or loss.

Play it a gain

Let’s assume Mallory wants to convert $50,000 CAD using Norbert’s gambit. She buys DLR on February 17, when the US dollar is worth $1.238 CAD, so DLR is trading at $12.38. Ignoring the trading commission, her order looks like this:

Trade Date Settlement Order Security Shares Price (CAD) Total (CAD)
Feb 17 Feb 20 Buy DLR 4038 12.38 49,990.44

Mallory waits three business days and then journals DLR to the US side of her account on the settlement date, February 20. She then immediately places an order to sell all 4038 shares of DLR.U, which is trading at $10.00 USD:

Trade Date Settlement Order Security Shares Price (USD) Total (USD)
Feb 20 Feb 25 Sell DLR.U 4038 10.00 40,380.00

To see if there is any capital gain or loss, Mallory will need to convert the proceeds of the DLR.U sale to Canadian dollars using the exchange rate on the settlement date, February 25. Note that it has now been eight days since she placed the buy trade, and currencies can move sharply over that time frame. We’ll assume the US dollar has climbed almost three cents to $1.264, which means the proceeds of Mallory’s sale are worth $51,040.32 CAD (that’s $40,380 USD × 1.264). When we subtract the value of the original purchase ($49,990.44 CAD) we’re left with a capital gain of about $1,050. If Mallory is in a 40% tax bracket, that will cost her more than $200 in taxes.

Don’t trust your brokerage

The example above is a bit extreme: $50,000 is large amount, and a three-cent change in the exchange rate in just eight days is a tad pessimistic (though certainly possible). If you’re doing a smaller gambit, chances are your gain or loss will be relatively minor. For what it’s worth, in 2014 I used Norbert’s gambit twice to convert small amounts of USD in a non-registered account. Using the method described above, I calculated a $13 loss on the first trade and a $25 gain on the second, for a trivial net gain of $12.

Unfortunately, my brokerage (Scotia iTRADE) saw things differently. I’ve written before about why you should not trust your brokerage to accurately calculate the adjusted cost base on your ETFs, and I found that out first-hand when I received my annual Realized Gain/Loss Report for 2014. It inexplicably indicates a $420 gain from the two DLR trades. I have no idea how they calculated the book values they’re using, and an email to customer service didn’t help. It’s no wonder the report includes the following disclaimer:

Scotia iTRADE provides cost basis and associated realized gain and loss information to you as a courtesy service and for informational purposes only and not for official tax purposes. Such information may not reflect all adjustments necessary for tax reporting purposes. You should verify cost basis and corresponding gain/loss information provided by Scotia iTRADE against your own records when calculating reportable gain or loss resulting from a sale.

One other issue may come up in this discussion. The CRA has a $200 exclusion on capital gains from foreign exchange, which means you don’t need to report any gain under that amount. You might be tempted to invoke this rule and elect not to claim a small gain you incurred doing Norbert’s gambit. However, this rule applies to cash conversions and was designed to avoid creating a taxable event every time Morty and Helen exchange a couple thousand bucks before heading to Del Boca Vista. While any gains or losses on DLR are due only to the exchange rate, it’s an investment fund, not cash. If you want to invoke the $200 exception and avoid claiming a capital gain on DLR, well, that’s between you and your accountant. I wouldn’t recommend it.



  1. Canadian Couch Potato May 18, 2015 at 2:55 pm

    @Troy: No effect. Horizons does this regularly to keep the unit price of DLR.U as close as possible to $10 USD.

  2. Troy May 18, 2015 at 2:58 pm

    Ah. Thanks for the quick reply. I was concerned because I track DLR and DLR.U on Google Finance, but DLR has recently disappeared from Google Finance. I thought maybe something more drastic had occurred.

  3. Arthur August 30, 2015 at 3:48 pm

    Hi, I couldn’t comment on the Complete Guide to Norbert’s Gambit and I wanted to ask something related:

    Why are DLR and DLR.U the ideal vehicles for Norbert’s Gambit? How do they compare with other interlisted stocks such as TD, RY, POT, BBRY?

    DLR/DLR.U are investment funds but they only hold cash, right? (related to tax consequences and interpretation)

    It seems that for some brokerages such as BMO IVL, using an interlisted stock such as TD will let you sell through the online platform instead of having to call in to sell DLR.U

  4. JRS August 30, 2015 at 6:00 pm

    I believe the reason is so that you only face currency risk, rather than both currency and security risk. That being said – I have used the gambit several times with DLR and DLR.U in my TD Direct investing account (non-taxable) accounts – and the entire transaction usually takes about 4-5 days. I can do the buy and sells online, but I have to journal the shares from one side of my account to the other, by calling into the brokers, and I have to wait for the journaling to settle (about 2 days) before I can sell on the other side. Given the time delays involved, the risk of currency fluctuation is quite high. I have not tried the gambit using a different security, such as TD – but I would certainly consider it if both the buy and sell could be done back to back.

    Has anyone tried the gambit in a taxable account using TD Direct Investing using something other than DLR / DLR.U? I would be curious to hear the results!

  5. Canadian Couch Potato August 31, 2015 at 8:14 am

    @Arthur: As JRS has said, the reason to use DLR is that it protects you from the possibility that the price of the stock could move during the interval between your two trades. Obviously this risk is reduced if you are using a brokerage that allows you to place the two trades online within a minute or so of each other.

  6. Janani September 3, 2015 at 2:52 pm

    Hi..I am a canadian citizen living in USA for the past four years. I am looking at buying real estate here but banks require 20/ down. I have funds in cad savings account and rrsp.can you advice on the best way to convert cad to usd ?

  7. Arthur September 4, 2015 at 11:34 pm

    Thanks CCP. The guide for BMO IVL says you have to call in to sell DLR.U on the same day, and I was wondering if that was only the case if using DLR / DLR.U. In May 2014, I bought and sold RY online CAD/USD without having to call in. I’ll be doing it again when markets open after Labour Day and can post an update here.

  8. Andrew October 30, 2015 at 2:15 pm

    I have been using the Gambit for many years to move money between my US and Canadian Brokerage Accounts at TD Waterhouse. I typically used one of the interlisted big banks and performed a near simultaneous buy and short sell of the stock. It was great- almost zero risk and currency exchange with no commission.

    Unfortunately, my most recent attempt at the Gambit was blocked by TD Waterhouse. To make matters worse, they allowed the long order to go through, then cancelled the short sale on the reasoning that I was “shorting the box” against SEC rules. It left me long on the stock exposed to a large position, and despite my protestations, the brokerage refused to reverse my long position or execute my short trade.

    “Don’t trust your brokerage” so true…

  9. Southpaw February 3, 2016 at 9:35 am

    @Julien, CCP: not sure if any further clarity on tracking ACB of USD cash sitting in the brokerage account. I’m looking to convert back to CADy and recall dozens of exchanges to USD from back in the mid 2000’s and my broker only keeps a short history of transactions. As such, I have no idea what my ACB would be. I’ve been very diligent on ACB tracking for securities but the cash thing is something that didn’t cross my mind until recently.

  10. François June 8, 2016 at 8:49 am

    Hi Dan (not sure if you monitor old posts, but this seemed like the best place for my query)

    I understand the whole capital Gain/Loss issue. What i am unsure is wouldn’t DLR.u which is effectively US$ and US$ cash be considered similar assets and therefore not a cristallisation of G/L, and that the effective gain/loss is only realised when you use the US$ to purchase something else?

  11. Canadian Couch Potato June 8, 2016 at 7:48 pm

    @Francois: You can realize a gain or loss any time your purchase price and sale price for a given asset are different when measured in Canadian dollars. So if you use $10,000 CAD to purchase $8,000 USD and then sell those USD for the equivalent of $10,100 CAD you will book a $100 gain.

    You can even realize a gain on foreign cash:

  12. Matt October 22, 2016 at 6:48 pm

    Could you write a similar post for the opposite case? The one where you have U.S dollars, buy DLR.U, journal it to DLR, and sell to end up with canadian dollars? Some of us at the office are interested to know where along the process you end up with that $1050 capital gain (in your example). It’s confusing.

    For example, if you start with 100k USD that you obtained when the exchange rate was at par, and do the Norbert gambit today, when DLR is 13.25, you end up with 135k and so, 35k of capital gain. Is there any gain or loss in that case? Much appreciated.

  13. Canadian Couch Potato October 24, 2016 at 8:01 am

    @Matt: Your example is flawed, because if the currencies were at par DLR would not be at $13.25. The price of DLR.U is more or less fixed within a penny or two of $10 USD, and the price of DLR moves up and down with the exchange rate. So if the currencies were at par the price of DLR would be very close to $10 CAD.

    The key point here is that the capital gain always needs to calculated using CAD. If you buy $100K USD today and sell it immediately for $135K CAD when the exchange rate is 1.35, that is not a capital gain, because in CAD terms those two amounts are equal in value. The only time a capital gain would occur is of the exchange rate changes during the interval between the two transactions.

    Hope this helps.

  14. Peter March 15, 2017 at 12:22 pm

    I’m wondering if using the near instantaneous short sell method can still create a capital gain. For example, I short sold 100 TD ($5233 USD), bought 100 TD.TO ($7029 CAD), and immediately had them journaled on March 7. The positions cleared from my account the next day.

    My short sell was worth $7045 CAD on the settlement day (March 10), but I bought 100 TD.TO for $7029 on March 7. Is there a $16 dollar capital gain?


  15. Daniel August 27, 2017 at 4:20 pm

    Hi Dan!

    Thanks so much for all your time and efforts – I have learned and gained so much from your articles, blog posts, and white papers. Love the white papers!

    My question involves my TD Direct Investing based RDSP (Registered Disability Savings Plan). I’ve been told that there is no way to perform Norbert’s Gambit in an RDSP because there’s no USD subaccount like with TD’s RRSPS. The only thing I have is automatic washing when I sell USD investments.

    Unless I’m missing something, I have one of two choices re: USD investments in my RDSP. The first is to simply take the currency conversion loss (e.g. TD’s spread) OR simply not invest in USD ETFs (e.g. VTI) in my RDSP and stick them in my RRSP instead where I can use Norbert’s Gambit.

    And advice would be greatly appreciated as the RDSP is a rather obscure investment vehicle relatively speaking.

    Thanks for your time and help!


  16. Daniel August 27, 2017 at 4:59 pm

    Sorry, one more option! I suppose I could have an ETF like VUN in my RDSP – it’s unhedged. But correct me if I’m wrong, it avoids currency conversion fees (because it’s a CAD ETF) but also loses the currency diversification that comes from VTI. VUS I’m avoiding based on your advice on hedging and because it’s the same as VUN.

    Thanks again!


  17. Canadian Couch Potato August 27, 2017 at 7:18 pm

    @Daniel: I would suggest avoiding US-listed ETFs in an RDSP, as they have no meaningful advantages in these accounts.

    VUN and VTI have exactly the same currency exposure, even though one is traded in CAD and the other is traded in USD. This is a common misunderstanding:

  18. Neal September 3, 2017 at 4:43 pm

    Hello hello!

    This is an awesome informative post. To the best of your knowledge is the Norbert’s Gambit method possible with the actual Disnat platform (non-registered account) ? Thanks again!

  19. Canadian Couch Potato September 5, 2017 at 8:07 am

    @Neal: I’m afraid I do not have experience with the Disnat platform.

  20. Trav. November 27, 2017 at 7:14 am

    I have a few questions with your comment:
    “The key point here is that the capital gain always needs to calculated using CAD. If you buy $100K USD today and sell it immediately for $135K CAD when the exchange rate is 1.35, that is not a capital gain, because in CAD terms those two amounts are equal in value. The only time a capital gain would occur is of the exchange rate changes during the interval between the two transactions.”

    This might be out of topic and with out using “Norbert’s gambit with the Horizons US Dollar Currency ETF (DLR/DLR.U)”
    …but what if you receive income from the US. For example, the income is 100K USD today in your US account and you wire that into your Canadian bank when the exchange rate for that day is 1.35. That money become $135K CAD in your Canadian bank for that day. You spent $135K CAD immediately in Canada within that day. To my understanding, you have a 35K capital gain and that needs to be reported because that is capital gain for that day, right? Or is that incorrect? As far as I know, the tax exempt is 200 capital gain only but 35K or 35,000 is more than 200. Therefore, the 35K needs to be taxed, is that correct? I want to believe that I am not correct. (SIDE NOTE: I understand that these are big numbers but these are only examples).

    If I use “Norbert’s gambit with the Horizons US Dollar Currency ETF (DLR/DLR.U)” then there is no capital gain at all? Let’s say, I am the one earning income from the US and I received that 100K and it exchanges to 135K CAD. I do not have to pay any capital gain tax for that 35KCAD or 135KCAD if I spend that within the same day? Interesting. If I do not spend it that same day, there is still no capital gain? If so, can you provide me with documentation or please refer me to a link so I can find out more. Thank you for taking the time to read all of this.

  21. Canadian Couch Potato November 27, 2017 at 7:36 am

    @Trav: I think you’re confusing a few issues here:

    RE: “The income is 100K USD today in your US account and you wire that into your Canadian bank when the exchange rate for that day is 1.35. That money become $135K CAD in your Canadian bank for that day. You spent $135K CAD immediately in Canada within that day. To my understanding, you have a 35K capital gain and that needs to be reported because that is capital gain for that day, right?”

    No, that is incorrect. There is no capital gain, because if the exchange rate is 1.35 then $100K USD is equivalent to $135K CAD. A capital gain only occurs if an asset is worth more when you sell it than when you bought it. You received the USD income when it was worth $135 CAD, and it still has the same value. No capital gain.

    I think the key point here is there can only be a capital gain or loss if the CAD/USD exchange rate changes during the interval between when you bought and sold the USD.

    It also makes no difference when you spend the money. After all, no one can possible track which specific dollars they are spending.

    Regarding your last question, you can realize a gain or loss using Norbert’s gambit in a taxable account, as described in the blog post. If you buy and sell the shares of DLR on different days, the exchange rate can change during that time, causing a gain or loss.

  22. Ka December 1, 2017 at 11:41 pm

    I’m curious, how does the ETF’s management fee (0.45%) factor into the cost of the conversion?

  23. Canadian Couch Potato December 3, 2017 at 2:14 pm

    @Ka: Because you are holding the ETFs for only a days (or in some cases only few minutes), the effect of the management fee is negligible.

  24. Nima January 25, 2018 at 7:41 pm

    I understand you leave yourself open to volatility while the trades settle, but you did just make some money by doing so, if there are cap gains taxes. I don’t think it’s a huge deal to pay tax on the gains, you did just make that money. You should be happy you didn’t have a big loss, instead of focusing on the tax burden of the gain.

  25. Daniel February 25, 2018 at 6:30 pm


    Why are the exchange rates based on the settlement dates? Wouldn’t it make more sense to use the trade dates instead? Is there a CRA bulletin or document regarding this? Also, if the brokerage automatically journals the shares on the same day (e.g. RBC DI), is it even necessary to track gain/losses considering the spread introduced by the brokerage fees? Even if the exchange rate were to swing violently between each transaction, how would you estimate any gain/loss considering the Bank of Canada only reports daily exchange rates?


  26. Canadian Couch Potato February 25, 2018 at 8:32 pm

    @Daniel: See this article from

    In October 2015 at a Roundtable on Taxation of Financial Strategies and Financial Instruments, as per document 2015-0588981C6 , the question of foreign exchange transactions was discussed, including whether the exchange rate to be used should be the one on the transaction date (trade date) or the settlement date. CRA responded that the Bank of Canada exchange rate for the settlement date should be used.

  27. Jus July 24, 2018 at 1:28 am

    Here’s my thinking to avoid the complication of potential capital gains (I’m using Questrade, but the principle should remain the same for anything). Keep in mind that my argument is simply academic right now, for the sake of avoiding having to report Norbert’s Gambit.

    This is based on the assumption that I have a maxed RRSP, but I have plenty of unused contribution room in my TFSA. If my RRSP isn’t maxed, I’m not sure I see any benefits to this idea…?

    1. I fund my TFSA in CAD.
    2. I purchase DLR.
    3. I journal it to DLR.U.
    4. I sell DLR.U, thereby adding USD to my TFSA.
    5. I withdraw the U.S. funds to my USD Account with my bank, or I transfer the USD to my non-registered account on Questrade to purchase U.S. stocks. (Yes, I realize you may question this wisdom, if I have unused TFSA room, but my argument is academic right now.)
    6. I get my contribution room back in my TFSA next year, based on the Canadian value of my USD withdrawal on the day I transfer it out of my TFSA.

    Am I missing anything, or would this completely shelter me from having to worry about tax implications from Norbert’s Gambit? The only risk I can see is that I could lose a small portion of my TFSA contribution room if the U.S. dollar is lower when I withdraw/transfer the money out of my TFSA.

    Also, does Questrade inform the CRA, and I’ll see the CAD-converted contribution room next year on my tax return? I’m pretty sure I can track it for my own records, but I’m not the one to notify the CRA of a TFSA withdrawal, correct?

    Ultimately, my argument is for those interested in acquiring U.S. funds through Norbert’s Gambit, and also avoiding the hassle of tracking it for tax purposes or paying tax on capital gains, when it’s not possible to use an RRSP in this manner.

    Thanks for looking this over.

  28. Arthur October 18, 2018 at 2:49 am

    Questrade reports to CRA a CAD-equivalent amount that you withdrew.from your TFSA. Correct that you don’t have to report. And you would track it yourself to understand your own contribution room.
    I think this is one way to do Norbert’s Gambit “tax free”
    but you only get to do it once per year
    and I don’t think the tax implications are typically that bad to only allow yourself to use TFSA to do it.
    Besides, if it ends up the other way, which could just as easily happen, you lose out on the capital loss.

  29. Ash October 26, 2018 at 4:02 am

    Is there any issues using this ETF as a dual citizen?(head aches with reporting canadian listed ETFs) Or am i better off using a stock to exchange funds?

  30. Dave January 9, 2019 at 11:34 am

    FYI: I recently tried using the Norbert Gambit at Disnat using DLR EFT without success. After speaking with support, I was informed that Disnat’s platform has a limitation preventing them from journaling stocks from the TOR stock market in a US$ account. It automatically assumes the stocks from the TOR stock market are in CND$ and won’t allow them to be journaled to a US account. The person I talked to suggested using TD stocks instead which is present on both US and CND stock market.

  31. Taofr February 4, 2019 at 9:09 pm

    @Dave: Two years ago, a Disnat agent told me exactly the same thing. Last year, Disnat told me by email that the operation is possible. I call, the agent says he will inquire, and leave a message the next day to say that it is impossible. I call back, I talk to another agent, and he manages to do the operation. It was to move the title HXS / HXS.U from my CAD account to my US account. This title is similar to DLR / DLR.U. This year, I did the operation again, but the agent still said it was impossible. I showed him that it had been done the year before, he inquired, and he succeeded!

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