Canadian taxation for daytrading gain/loss

Discussion in 'Taxes and Accounting' started by dojibear, Apr 1, 2002.

  1. I think there are a lot of Canadians on this board, maybe you could help.
    I work 4 days/week at my regular job, and daytrade 4 days/week at a daytrading firm (yes, that's 4+4) and am a Canadian citizen/resident.
    I talked with my 'new' accountant, and he said that the gain/loss in daytrading will be considered as capital gain/loss, and not as personal or business income. : :confused:

    However, I have some doubts on this. Anyone could tell me if they are in the same situation, or could direct me to some helpful website?
    (I went to the website of Revenu Canada and couldn't find anything on daytrading). :mad:

    Cheers! :)

    "IT479R Transactions in securities"
    which states ( as copied directly from the website:

    11. Some of the factors to be considered in ascertaining
    whether the taxpayer's course of conduct indicates the carrying on of a
    business are as follows:

    (a) frequency of transactions - a history of extensive buying and
    selling of securities or of a quick turnover of properties,

    (b) period of ownership - securities are usually owned only for a
    short period of time,

    (c) knowledge of securities markets - the taxpayer has some
    knowledge of or experience in the securities markets,

    (d) security transactions form a part of a taxpayer's ordinary

    (e) time spent - a substantial part of the taxpayer's time is spent
    studying the securities markets and investigating potential

    (f) financing - security purchases are financed primarily on margin
    or by some other form of debt,

    (g) advertising - the taxpayer has advertised or otherwise made it
    known that he is willing to purchase securities, and

    PAGE 4

    (h) in the case of shares, their nature - normally speculative in
    nature or of a non-dividend type.

    12. Although none of the individual factors in 11 above may be
    sufficient to characterize the activities of a taxpayer as a business,
    the combination of a number of those factors may well be sufficient for
    that purpose. Further, subsection 248(1) defines the term "business"
    to include "an adventure or concern in the nature of trade" and the
    courts have held that "an adventure or concern in the nature of trade"
    can include an isolated transaction in shares where the "course of
    conduct" and "intention" clearly indicate it to be such.
  3. axehawk


    Depends on whether your trading profits are your primary source of income.
  4. Cdntrader,
    Thanks for the infos. I'll print out the website and show it to my accountant.... and hope he'll give me some discount... after all, I (you) am doing all the research for him !!! :p

    Beside, the bulletin is dated Feburary 29, 1984, I wonder if there are any changes since.

    again, thanks !!:)
  5. Axehawk,
    I see what you meant.... so far, the first two years I did not have any gain; first year loss, 2nd year flat ! and guest what, I am very happy! :) , therefore my main income would be the regular job, however, for the long term, IF EVER I could have a gain that is equal to the other income, I wonder....
    ... maybe by that time, I will incorportate.
    oh boy! it will be a long apointment with the accountant ! :mad:

    Cheers! Spring is here!! :)
  6. ... hehehe... beside, did I mentionned that I didn't (forgot?) do my taxes last April??

    ooh la la!!! they sent me two reminder letters... the second gave me 30 days to submit the 2000 taxe... and the 30th day was... yesterday.... ooh la la!!!

    the taxman took away all my cheers! :(
  7. mskl


    funny how vague the criteria is...........

    there is NO clear cut definition. When I traded on the floor of the TSE (years ago), your income was considered business if you were actually registered with the OSC, failing this your income was capital.

    I spoke with a top tax lawyer last year and he said the Revenue Canada actually really could go after anyone who has profits via the stock market and claim it is business income. ie. How many people do you know who have large capital gains who DON't have knowledge of securities market (c). He told me a story of a guy who made in excess of $10 Mil on one stock that he held for many years and Revenue Canada came after him and claimed that his knowledge in the securities markets made that income business income. In this case, both parties settled somewhere down the middle. Many times these types of disputes end up in court, mainly because of the vagueness of the rules:

    ("Although none of the individual factors in 11 above may be
    sufficient to characterize the activities of a taxpayer as a business, the combination of a number of those factors may well be sufficient for that purpose.")

    I was also told that it was difficult for Canadians to treat losses created by the market as business loses in the last two years. (many tried and failed).

    If you want to be 100% safe then treat you income as business income. If you want a little risk then treat it as capital and just don't spend the excess. And if they ever come after you make sure you let them know that you are losing boatloads in the current year and that you want something in writing from them to indicate that your losses will be considered a business loss (they can't have it both ways).
  8. Well, I talked with my accountant tonight, and we've decided to consider it as business gain/loss. However he will ask a fiscalist tomorrow.
    Personnaly, I much prefer to have it as business income, with which one could deduct much more expenses than capital income
    (with capital income, legally, I will not be able to deduct the cost of e.g. trading books, internet connection, ect... a new DVD and a 32" plasma screen? :D

    In fact, this sentences from the webpage Cdntrader gave
    gives me good arguments if ever boogie taxmen come to drill me for choosing whatever.

    "18. The gain or loss on the "short sale" of shares is considered to be
    on income account." (and not capital gain)

    Cheers! :)