Hi everyone, Does anyone know what the test for reporting gains is for Canadian tax purposes? Trying to figure out whether my P&L would be taxed as trading income or as capital gains. According to my CPA, there are no explicit rules for this. So I'm wondering if anyone has gone through this process and can provide some color. Thanks in advance.
What type of trading are you doing? It matters in order to determine how to report your gains/losses. r.
Delta-one long/short equities/ETFs and some short-term vanilla equity options selling, akin to buy-write strategies. Always as liquidity provider. EDIT: However, would be nice to see the actual legislation in case I change the strategies.
The thing is, it's not black or white. Day trading is considered income and investment capital gain. If you do short term trading and your goal is purely speculative, than it is likely to be considered income. I report my P/L as income and I trade the e-mini intraday. If you search the Revenu Canada web site, you'll find the corresponding legislation text. Then it's a question of interpretation.
It's definitely not intraday trading where you have zero net exposure overnight, but I did trade almost every day. I was basically rebalancing my positions once a week, dollar-cost averaging into/out of positions by leaving limit orders and waiting for them to be hit/lifted.
My strategy is hedged long/short equity with weekly rebalancing, not necessarily trading. I set the target allocation over the weekend and leave the orders on, which then fill to the target allocation in 100-lots through algorithms. I'm just wondering if CRA is gonna interpret it as "trading income" due to the high number of actual trades and higher turnover than traditional buy-and-hold. See: http://www.advisor.ca/news/industry-news/when-trading-profits-are-income-119954
If you trade everyday, my take would be that you would need to declare your P/L as trading income. Btw I'm not an expert in tax reporting. If you want to make sure, although you will never be sure about this, you should consult a tax firm.
Thanks for your view rb7, much appreciated. Believe it or not, my tax guys have no view on this one way or another.
Depends how repetitive it is and whether it's a real job for you. If you do a lot of trading constantly you might get challenged on the capital gains where they might see it as income. If you have a real job with a salary in possibly an unrelated field and you do a few trades a month I think you can get away with it being capital gains. If it's your sole source of income good luck playing the capitals gains card. Sure you can do it but if u get audited ur screwed.