Taxes and trading in Canada - question

Quote from nononsense:

Would you happen to know whether:
(1) Are profits on futures trades treated like capital gains?
(2) Does Canada consider profits from personal frequent traders as "professional income" or will the "capital gains" rate also apply to this case?

Thank you!
More...

(1) Speculating in futures results in capital gains and losses. See this link, paragraph 7:
http://www.cra-arc.gc.ca/E/pub/tp/it346r/it346r-e.html

(2) Frequency is only one consideration in whether to assess trading gains as on account of income or capital. If it is not your primary business, you are highly unlikely to be required to use the income treatment (unless you elected this treatment in the past for securities transactions). With few exceptions, people who do not trade as a business will be far better off electing to treat gains as on account of capital.

HoundDogOne's previous post where he recommended finding a good tax accountant and keeping them was exactly right.

For those of you who are successful enough to have a "tax problem" I suggest you PM him and ask the name, or do a little research on Canadian CA's who work in this area.

All the best

J
 
What about an investor who allows a trader to trade on their behalf.

Assuming the investor does not trade and has a fulltime job unrelated to the markets. He allows a trader to trade on his behalf and at year end he has a 25% gain after all trade commissions and all traders management fee's. The trader makes approx 200 trades a year in equities only(no futures). the holding period is anywhere from a few days to 4 months.
Could the investor treat this as a passive investment, since he has someone else managing these funds?
Are we looking at the investors circumstances and primary source of income totally unrelated to the markets, or are we looking at the types of trades that the trader makes on behalf of the investor?
Cap gain vs. Income?
 
Quote from chaimshmerel:

What about an investor who allows a trader to trade on their behalf.

Assuming the investor does not trade and has a fulltime job unrelated to the markets. He allows a trader to trade on his behalf and at year end he has a 25% gain after all trade commissions and all traders management fee's. The trader makes approx 200 trades a year in equities only(no futures). the holding period is anywhere from a few days to 4 months.
Could the investor treat this as a passive investment, since he has someone else managing these funds?
Are we looking at the investors circumstances and primary source of income totally unrelated to the markets, or are we looking at the types of trades that the trader makes on behalf of the investor?
Cap gain vs. Income?
More...

Nice question.

Clearly this is a grey area, but I think the position that it is still not a business would lead one to treat gains as capital (excepting short sales of course). This would be my personal stance at least.

You can't get away from the substance of the transactions, which point towards passive income. An analogy would be pooling your funds with other investors for this manager to make investment decisions (for instance a hedge fund). Gains would still be capital. That the manager in your example has direct access to your account should not sway the facts. This would also be the case for those using CTA's to manage their futures trades.

Now I'm not 100% sure on this, but I know my tax pretty well. If you are nervous it is always possible to get a CRA ruling beforehand to clear up any uncertainty.

All the best

J
 
Well it would be the same if you have a broker who has discrecenary power over your account. You will be judge on the fequency,duration,and primary income status of your account.
Quote from chaimshmerel:

What about an investor who allows a trader to trade on their behalf.

Assuming the investor does not trade and has a fulltime job unrelated to the markets. He allows a trader to trade on his behalf and at year end he has a 25% gain after all trade commissions and all traders management fee's. The trader makes approx 200 trades a year in equities only(no futures). the holding period is anywhere from a few days to 4 months.
Could the investor treat this as a passive investment, since he has someone else managing these funds?
Are we looking at the investors circumstances and primary source of income totally unrelated to the markets, or are we looking at the types of trades that the trader makes on behalf of the investor?
Cap gain vs. Income?
More...
 
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