Let’s look at this timeline:
1. Converted 1,000,000 yen to $10,000 (100 yen/USD)
2. Used that to purchase 100 stocks in a US company ($100 per stock). The exchange rate was 102 yen/USD at this time
3. Sold these stocks at $110 for an overall amount of $11,000. The exchange rate was 120 yen/USD at this time.
4. Converted the $11,000 back to yen at 125yen/USD and received 1,375,000
Which of these steps was a taxable event and what type of tax would it be?
My understanding:
1. is not a taxable event, but changes the average acquisition price of dollar
2. is a taxable event as USD was spent and the tax is foreign exchange gains for: 102 minus the average acquisition price times 10,000
3. is a taxable event for the gains in yen: 11,000\*120 – 10,000\*102=300,000 yen which is capital gains. This also changes the average average acquisition price as we obtained $11,000 at 120 yen/USD
4. is a taxable event with foreign gains tax for 125 minus average acquisition price times 11,000
Is my understanding correct?
[edit]: fixed the formatting in step 3
by Ok_Philosopher_7716