While the precise criteria for what constitutes day trading inside a TFSA is somewhat murky, below are a few factors that we know the CRA looks at when determining if the gains from a TFSA qualify as a trade or investment income. The following section will discuss some factors that the CRA will consider when choosing if your TFSA investments reflect the trading activity.
What is Considered Day Trading in Canada?
You might be surprised to hear that your trading activities could be business activities, even when they are done within a TFSA. Trading securities inside a TFSA to earn an income on a full-time basis would count as a business. In the eyes of the CRA, if day trading is your full-time job and how you earn a living, then the returns you make will be considered business profits. Therefore, you might not qualify for the capital gains tax if the CRA deems your day trading income business income.
Trading like a day trader Meanwhile, if it is determined that you are trading on a similar scale and frequency to day traders — you would pay the capital gains tax on 100% of your trade profits. The Canadian Tax Office will make this determination case-by-case – but if you are seen as trading as a person, you will pay capital gains tax on any profits rather than income tax. The Canadian Revenue Agency (CRA) has specific criteria for being defined as a day trader. If they deem you one, then your trading activities are considered business income. Therefore, all gains/losses are treated as ordinary income and taxed as regular income at your marginal tax rate.
How is Day Trading Income Taxed?
The CRA treats day trade income, or trading frequently, as regular income, and so all of that is taxable. Now, we know the CRA views day trading as a business, and thus, any profits made on a day trade would be taxed as business income rather than as investment income. Therefore, when the CRA classifies a TFSA account as conducting business activity (day-trading), the CRA will tax profits as business income.
First, the CRA prohibits any business activity inside a TFSA. If you are an active, professional day trader, any gains on capital would count as business income rather than investment income and would need to be taxed. As a private investor rather than a day trader, your gains would be taxed as you would any other stock market investment. If you are a trader (infrequent trader with a long-term investment horizon), then any gains would be treated as capital gains. If, however, you are day trading, as in the case of a securities dealer, buying and selling daily, aiming to earn a short-term profit from minor price fluctuations, then any gains would need to be reported as trade gains.
CRA Day Trading Rules
If you only day trade occasionally for some additional income, this would be considered investment income and taxed as any other interest, dividends, and gains you make on non-registered accounts. In this scenario, investment income like dividends, interest, or any net gains on the sale of shares would be subject to tax.
This means that the day trader theoretically can subtract any losses against the other sources of income to reduce the total amount of taxes due. For example, if you reported $15,000 in trading losses this year every year and operate a business, you can subtract the trade losses against your other sources of income.
Keep in mind that you only can deduct expenses if trading is your full-time job and you are bringing in earned income. In addition, day trading has some tax implications, and you have to follow CRA rules when deciding what kind of accounts you will run those trades on.
The CRA defines a day trader as operating a business when making large amounts of buys and sales. The period between purchases and sales of specific security will be relatively short. The practice is known as day trading; the buying and selling of investments that happens on or several occasions during a single day have been identified by the CRA as an example of conducting a business. For example, if you make three stock or options trades on a U.S. securities exchange within five days, you may be considered to have engaged in day trade.
Can I Day Trade With My TFSA?
No, you will be taxed.
As its name suggests, Canada’s 30-day trading rule applies for a period beginning 30 days before the day you sell a transaction resulting in a capital loss and ending 30 days later. Without the 30-day trading rule, a trader can sell shares, incur a capital loss, and then immediately buy back those same shares. Known as the 30-day rule, if an investor, their spouse, or the corporation they control repurchases the asset or a like-kind property within 30 days after selling, they cannot claim a capital loss for tax purposes.
As a result of government and regulatory requirements to combat money laundering, some brokerages enforce one of the most peculiar rules on day-trading in cash accounts. The Bank of Canada, the Canadian-based financial institutions conglomerate, says that Canada Revenue Agency (CRA) takes a comprehensive look at a day trader’s contents and intentions to determine if activities should be classified under capital gains or transaction income. Generally, the Canada Revenue Agency (CRA) defines a day trader as engaged in trading activities or engaged in a business. Accordingly, their trading activities generate a business income, with their gains or losses considered ordinary income.
You should consult with a knowledgeable cryptocurrency tax accountant to get tailored advice about your investments and subsequent taxation. Still, we can review general rules for how corporate income and capital gains on cryptocurrency are taxed in Canada. Coinsquare Trades Like An Individual As we have said, the tax treatment of your DeFi investments will come down to whether or not the Canadian Tax Office views you as an individual investor or views your crypto investments as more like business income. In addition, you will have to comply with a rule that requires you to hold over $25k in your trading account.