Taxes and trading in Canada - question

A

ArcticTrader

Guest
Hey there...

I was just wondering if anyone was familiar with how taxes are handled for traders in Canada. I know that you can set up a corporation and trade through that, or you can trade as an individual.

My question is, if you do trade as an individual, does the government tax you as if you were a contractor (i.e. you can claim all kinds of deductions, etc.), or are you taxed at the normal full rate that an employee at a firm would have to pay? (In Canada, this can approach close to 50%, so it's a big difference.)

Thanks!
 
Quote from ArcticTrader:

Hey there...

I was just wondering if anyone was familiar with how taxes are handled for traders in Canada. I know that you can set up a corporation and trade through that, or you can trade as an individual.

My question is, if you do trade as an individual, does the government tax you as if you were a contractor (i.e. you can claim all kinds of deductions, etc.), or are you taxed at the normal full rate that an employee at a firm would have to pay? (In Canada, this can approach close to 50%, so it's a big difference.)

Thanks!
More...

I was taxed as a self employed individual. I claimed all of my trading profits as earnings, and deducted many expenses including home office, utilities, car mileage to a from work etc.

I was under the impression if you make something like 70k a year it is better to incorporate and pay corporate tax on your profits and take a salary from your company.
 
Quote from Szeven:



I was under the impression if you make something like 70k a year it is better to incorporate and pay corporate tax on your profits and take a salary from your company.
More...

Yes. Corporate tax rates provide significant savings. If you are in the top tax bracket and don't plan on paying yourself your full earnings, then incorporate. You can open investment accounts in your corporation's name and leave funds in there indefinately.
 
Incorporation's not that simple since 'investment income' inside a corporation is taxed at a higher rate than it is personally, although it evens out when you withdraw profits to yourself. You can try to make the case that your trading isn't investing of course. This is the discussion I'm having with my accountant now. To me I'm like a retailer that takes in inventory, marks it up, then re-sells it. The gov't may not see it that way though.

If you aren't incorporated and trade for a living, you are simply self employed and fill out a business return (T2124). Your gross profits minus all your eligible expenses, including home office expenses, depreciation on capital equiment, etc.
 
This is the second time I have noticed this question being mentioned on ET and the replies always left out a very important fact, the Capital Gains Tax:

http://www.fin.gc.ca/toce/2002/cgtc_e.html
50% of your gains are tax free, if you make $100,000 then only $50,000 is considered income.


Quote from Szeven:
I claimed all of my trading profits as earnings.
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You should have claimed only 50%.
 
Trading is my only income. I traded at swifttrade and they paid me a cheque that was my paycheck.

I dont think that my high frequency trading as my only income is capital gains. No one else i know did it like that from swifttrade, maybe we are all morons, but that includes my accountant.
 
Quote from Szeven:

Trading is my only income. I traded at swifttrade and they paid me a cheque that was my paycheck.
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Then you must have been considered an employee of Swiftrade, not self-employed as a trader.
 
I am a full-time day trader since 2002 . Only half my gains are taxed. CCRA representative will tell you clearly and loudly capital gain is the way to go.


Don't be fooled by those tax preparation "professionals". They want you claim as business income which is 100% taxed, but you can claim expense. They try to push you to do this because they want collect some big consultion fees from you.



Quote from ArcticTrader:

Hey there...

I was just wondering if anyone was familiar with how taxes are handled for traders in Canada. I know that you can set up a corporation and trade through that, or you can trade as an individual.

My question is, if you do trade as an individual, does the government tax you as if you were a contractor (i.e. you can claim all kinds of deductions, etc.), or are you taxed at the normal full rate that an employee at a firm would have to pay? (In Canada, this can approach close to 50%, so it's a big difference.)

Thanks!
More...
 
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