Investing

Day trading in RRSP and TFSA

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  • Oct 29th, 2021 1:02 pm
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Oct 6, 2020
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Day trading in RRSP and TFSA

Hi, could you please let me know if it is a good idea to day trade in an RRSP and a TFSA account or if there are any tax implication or any other issues?
63 replies
Deal Addict
Sep 14, 2012
1977 posts
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Montreal, QC
MicRitz13 wrote: Hi, could you please let me know if it is a good idea to day trade in an RRSP and a TFSA account or if there are any tax implication or any other issues?
Day trading with a TFSA account isn't recommended (and I would suspect the same is true for an RSP) since the CRA can come after you for the gains as they consider day trading to be a business income and a TFSA is meant for individual investments.

More information can be found on: https://www.moneysense.ca/save/investin ... -unlikely/ and https://www.advisor.ca/tax/tax-news/cli ... r-the-tax/

Two informative videos on YouTube on the topic can be found *HERE* and *HERE*
Sr. Member
Apr 14, 2006
879 posts
543 upvotes
St Johns
lmcjipo wrote: Day trading with a TFSA account isn't recommended (and I would suspect the same is true for an RSP) since the CRA can come after you for the gains as they consider day trading to be a business income and a TFSA is meant for individual investments.

More information can be found on: https://www.moneysense.ca/save/investin ... -unlikely/ and https://www.advisor.ca/tax/tax-news/cli ... r-the-tax/

Two informative videos on YouTube on the topic can be found *HERE* and *HERE*
I’ve been doing for more than 15 years it’s never been an issue, what I do with my RRSP or TFSA is none of the CRA business. They will only bother you if you over contribute or withdraw.
Deal Addict
Sep 14, 2012
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tradinghumble wrote: I’ve been doing for more than 15 years it’s never been an issue, what I do with my RRSP or TFSA is none of the CRA business. They will only bother you if you over contribute or withdraw.
I like your attitude but it is the CRA's business since they are giving the benefit of saying what is tax free and what isn't. For example, in the past, people used to not be able to put more than 10% of their investments into foreign income (if I remember correctly) in an RSP... I guess your attitude back then was also that you do/invest in your RSP wasn't the CRA's business.
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Sep 21, 2007
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day trade in a cash account.
"An essential aspect of creativity is not being afraid to fail." -- Edward Land
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May 2, 2019
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Vancouver
tradinghumble wrote: what I do with my RRSP or TFSA is none of the CRA business
Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA won't have a problem coming after traders later.

Here's from the horse's mouth on running a business from TFSA:
"If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business."

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
"1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments."

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you don't need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.
Deal Addict
Sep 14, 2012
1977 posts
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Montreal, QC
yvrbanker wrote: Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA won't have a problem coming after traders later.

Here's from the horse's mouth on running a business from TFSA:
"If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business."

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
"1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments."

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you don't need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.
I wasn't sure about an RSP but now that I think of it, what you posted would make sense that day trading would be allowed in it since it is in the government's (CRA's) interest to allow it.

Under current rules, if I had $100,000.00 in my TFSA, the government would see none of it in terms of getting any taxes from it. In an RSP, if I had $100,000.00, the government would get their share of it since an RSP is tax deferred meaning people will pay tax on it whereas a TFSA is tax free meaning not paying any tax on it. It is in their interest for the RSP to be worth as much as possible for clawbacks and taxes.

That being stated, I wouldn't do day trading in my RSP account since I don't have the time and my philosophy on my RSP is long term growth/appreciation.

Before considering day trading, one should speak with a CPA or a tax lawyer in my opinion to understand what one is getting into and how to take advantage of the tax laws.
Deal Addict
Sep 27, 2020
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yvrbanker wrote: Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA won't have a problem coming after traders later.

Here's from the horse's mouth on running a business from TFSA:
"If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business."

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
"1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments."

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you don't need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.
Excellent summary.

I would just add that in addition to RRSP, you can day trade in any registered vehicle that is tax deferred.
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Sep 27, 2020
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lmcjipo wrote: Before considering day trading, one should speak with a CPA or a tax lawyer in my opinion to understand what one is getting into and how to take advantage of the tax laws.
This.

Day trading is like a business so you get certain perks (e.g. writing off your computer, desk, etc.) but you do not get to claim the income as capital gains.
Sr. Member
Apr 14, 2006
879 posts
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St Johns
lmcjipo wrote: I like your attitude but it is the CRA's business since they are giving the benefit of saying what is tax free and what isn't. For example, in the past, people used to not be able to put more than 10% of their investments into foreign income (if I remember correctly) in an RSP... I guess your attitude back then was also that you do/invest in your RSP wasn't the CRA's business.
'when' the max 10% foreign investments was in effect I was respecting it, right now it is not and it hasn't been for a while.

There's no legal rule that prevents one from day trading in a RRSP account, as I said I've been doing large sizes for the past 15+ years across multiple brokers TDW, BMOIL. I do at least 55 trades/quarter on my RRSP.
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Sep 14, 2012
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tradinghumble wrote: 'when' the max 10% foreign investments was in effect I was respecting it, right now it is not and it hasn't been for a while.

There's no legal rule that prevents one from day trading in a RRSP account, as I said I've been doing large sizes for the past 15+ years across multiple brokers TDW, BMOIL. I do at least 55 trades/quarter on my RRSP.
I was referring to your comment on "what I do with my RRSP or TFSA is none of the CRA business" which indicates that you can do whatever YOU want and it doesn't matter what the CRA stipulates for either account as long as you don't exceed your contribution limits. The CRA (and Canadian government) stipulates what the accounts can be used for.

The CRA stipulates what the accounts can be used for and while an RSP might not have issues with day trading, a TFSA is different. The CRA could probably care less if an RSP had one million dollars in it but would care if a TFSA had one million dollars in it even if the plan holder never overcontributed in either plan since one account is tax deferred and the other account is tax exempt. Using the one million dollar value as an arbitrary value to illustrate a point.
Deal Addict
Sep 27, 2020
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What will be interesting is how CRA handles all of this for 2020 filings.

There was a massive increase in day trading volumes this year during the pandemic and it has continued. There are likely many who don't understand the tax rules when it comes to TFSAs, capital gains, etc.
Sr. Member
Apr 14, 2006
879 posts
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St Johns
lmcjipo wrote: I was referring to your comment on "what I do with my RRSP or TFSA is none of the CRA business" which indicates that you can do whatever YOU want and it doesn't matter what the CRA stipulates for either account as long as you don't exceed your contribution limits. The CRA (and Canadian government) stipulates what the accounts can be used for.

The CRA stipulates what the accounts can be used for and while an RSP might not have issues with day trading, a TFSA is different. The CRA could probably care less if an RSP had one million dollars in it but would care if a TFSA had one million dollars in it even if the plan holder never overcontributed in either plan since one account is tax deferred and the other account is tax exempt. Using the one million dollar value as an arbitrary value to illustrate a point.
Agreed, I never day traded TFSA. Thx for the info
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Feb 28, 2006
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The real question is what is considered day trading in the TFSA. Say, I buy a ticker one day and then sell the next trading day. Is that considered daytrading?
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Dec 13, 2010
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jeffyjaixx wrote: The real question is what is considered day trading in the TFSA. Say, I buy a ticker one day and then sell the next trading day. Is that considered daytrading?
Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.
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Dec 4, 2011
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thetipster wrote: Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.
There are way too many variables for them to issue precise guidelines on what the threshold is. None of the frequencies you mention are even close to day trading however.

The closer your trading is to a full time job and a high number of intraday transactions, no long term positions, etc. the closer you are to income vs. capital gains. Gains only come in when you are a statistical anomaly for them, then they will look at you. 99%+ of people's TFSA are not even worth a look for them.

Always best to talk to an accountant on these matters obviously and don't be the low-hanging fruit for them.
Last edited by admiralackbar on Jan 7th, 2021 11:44 am, edited 1 time in total.
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Dec 28, 2010
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thetipster wrote: Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.
Thank you for this reply. There are a lot of people here who seem to know when the CRA will do what but how do you run a business in a TFSA? Exactly, you can't.
I day traded in a TFSA for 2 years and the CRA never touched my account.
.
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Jul 15, 2005
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VESTEGAARD wrote: Thank you for this reply. There are a lot of people here who seem to know when the CRA will do what but how do you run a business in a TFSA? Exactly, you can't.
I day traded in a TFSA for 2 years and the CRA never touched my account.
Don't forget that the CRA won't necessarily go after you a year after day trading. Possibly the gains your making haven't made it worthwhile for them to go after you, or they could be building a case against you with years worth of data.

I'd say try and do a mix of both day trading & some long term holds.
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Jan 4, 2017
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The main benefit of TFSA & RRSP accounts are to leverage long term compounding growth without paying taxes on the gains (ie, over decades - compounding doesn't really work its magic over just a few months or short years). Completely tax-free in the case of the TFSA, and only tax-deferred for RRSP.

Before going any further, let's clarify what is meant by "day trading" and "investing", which are two distinct, separate things.

Investing refers to purchasing an asset with the goal of acquiring capital appreciation and/or income from said asset, there are valid short and long term investing strategies of all kinds. They can take the form of investing directly in a business, buying mutual funds/index funds/ETFs/REITs/stocks/bonds, real estate, and obviously much more. "Long term" in investing is typically thought of as decades. A year or two is not a long time to invest. There are valid active and passive investing strategies, though communities like these tend to heavily favor the passive strategies (with good reason).

Day trading refers to the practice of actively buying/selling stocks/options/currencies/whatever to profit from the volatility/price action throughout the day. If you are buying to sell for a profit the next day, week, month - that is not day trading (it's commonly referred to as "swing trading"). But let's take it a step further, if you're just buying stuff hoping it'll go up, that's not day trading! That's just random speculation / gambling. In order to do actual day trading, you need to learn a specific, legitimate trading strategy and successfully execute it. That takes as much time and effort to become successful at than anything else, hence the statistics on day trading making it sound impossible when it isn't, really - it's just that people have woefully incorrect expectations as to what it entails to consistently succeed at day trading over time. ~97% of people are unwilling to commit that (understandably).

So in summary, please do not gamble in your TFSA/RRSP accounts. They're perfect for investing, so use them for that. If you've maxed them out already or you just want to get into actual day trading, use the appropriate account for that, which would be a cash/margin account with the likes of Interactive Brokers, Virtual Brokers, Questrade or other similar brokerage platform. That's what those accounts are for, and you will benefit from the features they offer which registered accounts do not.

If what you actually want to do is swing trading, it's likely totally fine from a CRA perspective in your registered accounts - but again, why would you use up your contribution room on speculative trades instead of investing? IMO if you have already committed to a sound long-term investing strategy with ~90%+ of your portfolio and want to allocate a small portion to the riskier stuff - that would be all good.

Hope this helps!
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I do a lot of covered call trading. Most of it would be closed out in a month. Would that make it a daytrading? I averaged about 10 trades per day, thank you Covid, through 4 accounts.

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