Canadian Daytrading Taxes

Discussion in 'Taxes and Accounting' started by rgalan, Mar 1, 2003.

  1. rgalan


    How do canadian daytraders report their income on the income tax return? I understand it has to be reported as business income, but where exactly on the return does it go, since regular business has to pay GST as well?

    Or as a daytrader, do you have to pay GST on your earnings and then pay full rate income tax on the what's left?

    That would make the effective tax rate fairly high.
  2. Everyone pays GST on goods and services. Only businesses selling goods or services have to collect it and remit to the government. Traders do not fall into this category, so GST does not enter into the picture.

    Just fill out a T2124 business income form and report all your profits and expenses there.

  3. rgalan


    If you file a T2124 business income form, with annual sales greater than $30,000, you automatically have to register for Business Number/GST. Thereafter you have start remitting GST periodically, etc.

    The GST guide does not indicate that daytrading in stocks is exempt. Rather, I understand you are classified as a "dealer in stocks". You therefore provide a service to the investing public, which means you have to pay GST on any sales your business gets?

    Where in the GST guide did you find indication that traders do not have to collect GST (they are exempt)?
  4. ctrader


    I don't think so, its not business income, its investment income. You should still be able to write off costs associated with the investment (ie you can write off loan taken out to buying income producing investments).
  5. As a trader, you aren't providing goods or services to anyone. You don't have customers and you aren't a dealer. If you remit GST, you have to collect it from someone first. Who would be paying the GST on the sale of stock you hold?

    It's self evident, but I have spoken with CCRA personell about it and they confirmed it also.

    If you trade full time, it's not really investment income either. It's taxed the same as salaried income, with all the expenses incured to earn income being deductible. There is an information circular on the subject, I can't remember the name of it, but a search on ccra's site will turn it up.
  6. X$Trade


    If I incorporate a company that is primarily involved in the trading of securities and then enter into a contract with a prop. firm whereby the incorporated company trades for the prop. firm's account and the receives a portion of the profit how is this viewed by CCRA? Has anyone had any experiences remotely resembling this?

    Of course the corporation would then pay the trader (ie. me)a wage. My understanding is that this is all perfectly acceptable and that the corporation would not have to charge the prop. firm GST as it is transacting in securities and the industry is exempt from GST.

    I also understand it that because the corporation would collect GST and not be a registrant that it would burn on any GST that it might pay out in its course of business.

    Are there any Canadians out there who trade full time for a living and do it as a corporate entity and thus have experience in these matters?
  7. rgalan


    But you still have to file form T2124. Once your annual sales there exceed $30,000, you have to register for Business Number/GST. Also what Industry code do you indicate on this form?

  8. "Remiting" GST means returning to the government the tax that you have collected from customers on their behalf for goods or services that you provide.

    If you don't collect GST, you have nothing to remit. GST is not an income tax, so you don't have to pay it on profits. As a trader, who would you be collecting the GST from?

    There is no industry code that really describes trading like how we do it. I spoke with more than one CCRA rep who was stumped by this and was told to leave the industry code blank and attatch a note to my return.
  9. X$Trade



    I agree with your assessment of the GST except for the fact that you don't pay GST on profits. Technically that is exactly what you pay the GST on.
    For example if you are in the widget sales business and you buy your widgets from a supplier for x you pay GST to supplier of x+GST. When you sell the widget for 2x you then collect GST on 2x+GST. The GST on the 2x is greater than the GST on x by the profit margin and on your GST remittance form with your balance of credits and debits you actually only remit to the gov. the GST on the profit portion of the transaction (you retain the GST amount you paid out originally for x). This applies to the reverse as well. If you have a transaction where you have negative profit (ie a loss) then you in effect get back the difference in GST between what you paid to the supplier originally and what you collected when you re-sold the widget at a loss.

    My understanding as to the application of GST to trading is that it does not apply because there is a special exemption provision for the "financial services" industry and 'dealers in securities' under which our activity would fall. similarly this is why you do not pay GST on commissions to your broker! (and who says banks don't control the Canadian Gov't)

    Do you file as a corporation? Or do you simply declare all your trading income as 'personal' income?
    #10     Mar 4, 2003