Don't bother read the bulletins(Those are for tax professionals, not for home gamers).BTW, no one can make right interpretations of them. I know my friends and I report our trades as capital gain for years without any problem. Just make a call to CRA. They will tell you as long as you trade stocks. Capital gain will apply.
As a Swifty, you are not an employee but a contractor... or at least this is my situation with a different firm. As a contractor, you can write off a percentage, but as an "employee" of your own corporation, the write offs are a bit better. Ultimately, (long term), a corporation is the best way to go as the rate is dropped even further... and the CCRA along with our new PM is looking to continue decreasing the rates over the next few years. Currently around 19% and falling. The premise is that once you have a lifestyle established, the best way to go is with a corporation. I find paying myself a salary keeps me in line... You can even have others on the payroll doing various "tasks" for the company. i.e. Wifey can do "research" for 50K/ year if she doesn't have another job. Better to keep it in the family... Maybe a bad example but you get the idea. hope this helps
Ignorance of the rules will not get you very far in an audit, so ignore the truth at your own peril. The CRA's stance on shortselling is as clear as day, and the bulletins are not difficult to discern the difference between cap gains and income as far as daytrading is concerned. It's not a problem for you because you haven't been audited. Yet. This subject has been extensively discussed in the past: http://www.elitetrader.com/vb/showthread.php?s=&threadid=64365 http://www.elitetrader.com/vb/showthread.php?s=&threadid=45519
lescor is right. Been trading for a living for over 10 years. (1) If you trade for a living... capital gains do not apply to you. Period. (2) Creating a one man corporation may allow you to defer taxes... But in the end you will be taxed exactly same as the personal rate. A man cannot evade taxes by simply forming a corporation. (3) Yes... you can deduct ALL applicable expenses from gross income... but keep careful records. (4) There is some distinction between trading profits and dividends. Ask your accountant. (5) And keep changing accountants until you get a great one... and be willing to pay for greatness. I'm keeping my 4th one forever. (6) Never even consider trying to save money on lawyers and accountants. It will cost you your business someday. (7) If the Tax Man calls and wants to audit you... Immediately fax him 100+ pages of financial statements. The man will decide you are too much trouble.
doesnt the capital gains guide also state that if you use capital gains you also have to use the wash sale rule? just wondering,is your only income from trading or from other sources as well? well,back to my office at revenue canada
HoundDogOne has the correct spin on the realities of tax rules for traders. The ordinary phone jockeys taking your questions at CRA are minimally skilled ambiguous props. Any one reporting so called Day trading on a capital account is clearly violating multiple sections of the code. Short sales are considered on an Income account..period ...end of story. Longs will be subjected to series of tests to determine the classification. Lots of room for challenge here. If one worries about being in a near 50% tax bracket on an Income submission then CRA will be happy to audit as a Capital account submission will yield then only 50 to 70% of potential tax on the profits. Only huge business expense deductions will help one approach Capital account net liability. If you just file a Sch. 3 / 4 with totals and net , and don't make that much, then the likelyhood of an audit is small. Show a 100K+ and have poorly correlated T5008's ...well...the greenhorn audit team of ...say..."Chang, Rodriguez, Ahmallah and Petrinski" may give you a call for review. You may bamboozle one of them but if they bump it upstairs for interpretation then all those cock sure "Capital Accounters" are in for a world of hurt as they may open 3+ years back and tag you for 70 grand. Some of your future attempts at submitting for capital gains may be challenged as they will consider you on an Income account in perpetuity...forcing you to defend the tax return. Even one's spouse Capital gains can be subject to interpretation for Income inclusion. If any of you file trading on a Capital account ...more power to you...just keep a few bucks in the bank in case they come a knocking..
HoundDogOne I imagine your list of seven points comes from many years of experience. Every trader should print that list off and stick it to the wall in their office. Extremely applicable in any line of self-employed buisness. Well said....
I agree with all 7 point except for #2. In the long run you end up keeping more money because of the tax deferal. Just like an RRSP, where you'll pay the same tax rate someday (if still in top bracket), but you'll pay that % on a larger amount. As these guys have all said, you absolutely cannot claim trading income as capital gains if it is your primary source of income!!!
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!