Canadian Taxes on Equities? Will they consider trading as business income or capital

[gekko]

Quote from Osiris:

That really sucks, it sounds though like they are mostly interested in reporting consistency for the retail trader. But a few of those comments about "frequency", "period of ownership", and "time spent" are a bit of a concern.

That would be so crappy to have to report gains as income. IMO, that is one of the big advantages of trading, only 50% of capital gains are taxed.... I have been wondering about this for a while now.

Keep in mind that even if they treat it as an income, and you are incorporated your efffective tax rate would be about 18.5% for your first $250,000 of NET Income. Plus you get all the deductions. Every trader situation is different, but this way may be cheaper than being taxed on 50% of the gain at a much higher tax rate.

 

[mahram]

I known people who have made over 800 trades in a year and they have never flagged by cra. I think the whole bulltin is crap. It should be updated to take into consideration of electronic trading. It was last updated in 84. Right now, if you make all your trades just capital gains, even thought you daytrade, its still a crap shoot if they consider it as regular income or cap gains. That was why I thought, canadian cap gains rules were so complex vs american cap gain rules. They are more defined in the US, and more updated, and takes into account traders. While our definitions are dated to 84, where the daytrader was still a dream.

Quote from Osiris:

That really sucks, it sounds though like they are mostly interested in reporting consistency for the retail trader. But a few of those comments about "frequency", "period of ownership", and "time spent" are a bit of a concern.

That would be so crappy to have to report gains as income. IMO, that is one of the big advantages of trading, only 50% of capital gains are taxed.... I have been wondering about this for a while now.

 

[plugger]

Sounds like someone is putting the cart before the horse. Once you make money trading, you'll then have a tax problem.

 

[Chagi]

Quote from mahram:

I known people who have made over 800 trades in a year and they have never flagged by cra. I think the whole bulltin is crap. It should be updated to take into consideration of electronic trading. It was last updated in 84. Right now, if you make all your trades just capital gains, even thought you daytrade, its still a crap shoot if they consider it as regular income or cap gains. That was why I thought, canadian cap gains rules were so complex vs american cap gain rules. They are more defined in the US, and more updated, and takes into account traders. While our definitions are dated to 84, where the daytrader was still a dream.

That's actually an interesting point, high frequency trading would have been much, much less common back in the early 1980s, unless you had a lot of money. I can only imagine how crappy broker commissions must have been back then.

 

[Osiris]

Quote from gekko:

Keep in mind that even if they treat it as an income, and you are incorporated your efffective tax rate would be about 18.5% for your first $250,000 of NET Income. Plus you get all the deductions. Every trader situation is different, but this way may be cheaper than being taxed on 50% of the gain at a much higher tax rate.

That's true gekko...i forgot about that, the small business tax rate. Some provinces are even better aren't they? I will check it out. Still...if possible i would prefer to keep all of mine as capital gains. Meeting account in couple of days I will post if i find out anything useful...which i really doubt

 

[steeldust]

Quote from lescor:

Yes. File a personal tax return and include a T2124, Statement of Business Activities.

Deduct interest costs, subscriptions, hardware, home office expenses, etc

hi. thanx for the info! what do you describe your business as? are putting down stock trading or futures trading? how are you accounting for deprecation of computers and equipment? if i bought a new computerdo i just deduct the full amount or do i deduct some each yr? juts wondering how you are doing it. thanx for any info.

i trade futures so i'm thinking its similar from the bulletin i read(from the 70's)lol. revenue canada sure stays up to date!

 

[Boib]

Quote from plugger:

Sounds like someone is putting the cart before the horse. Once you make money trading, you'll then have a tax problem.

If you're a business you can write off losses against other income or carry them forward.

You are also allowed to write off all trading expences like your cost to attend "Trading Expo" in Vegas.

I phoned CCRA last year and was told as long as I was trading securities I could claim them as capital gains.

Last year I received a T5008 from IB. The capital gains are shown here. I'm hoping this year to just enter the amount on the T5008 slip and not have to list all my trades.

I'm not a tax expert or an accountant.

 

[lescor]

Industry code 561000 is what I put on my business return. I just call myself a financial trader. You can read up on capital cost allowance (depreciation on hard assets) on the web or get a book from the library, but yes, you can deduct depreciation costs.

Quote from steeldust:

hi. thanx for the info! what do you describe your business as? are putting down stock trading or futures trading? how are you accounting for deprecation of computers and equipment? if i bought a new computerdo i just deduct the full amount or do i deduct some each yr? juts wondering how you are doing it. thanx for any info.

i trade futures so i'm thinking its similar from the bulletin i read(from the 70's)lol. revenue canada sure stays up to date!

 

[lescor]

Quote from Boib:


I phoned CCRA last year and was told as long as I was trading securities I could claim them as capital gains.

Careful there, as the precedent has been clearly set that short selling is income, not capital gains. I don't know how it works with options or futures, but the spirit of the rule is that you have to own a capital good to claim it as a capital gain when you sell it. A derivities contract? Not sure on that. It is tough to find an accountant who knows their stuff on these issues.

I probably do 25,000 trades in a year. I wonder how CRA would deal with a box full of trade records and if it would raise some red flags?

 

[Boib]

Quote from lescor:

Careful there, as the precedent has been clearly set that short selling is income, not capital gains. I don't know how it works with options or futures, but the spirit of the rule is that you have to own a capital good to claim it as a capital gain when you sell it. A derivities contract? Not sure on that. It is tough to find an accountant who knows their stuff on these issues.

I probably do 25,000 trades in a year. I wonder how CRA would deal with a box full of trade records and if it would raise some red flags?

Sounds like you're already set up and claiming as a business.

I have prepared tax returns both ways and to date there hasn't been much difference either way. It would have been to my advantage to be a business while I was learning so I hope that if the CRA decides I should claim as a business in the future I can go back a few years for write offs.