Investing

Day trading in RRSP and TFSA

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  • Oct 12th, 2020 11:00 am
[OP]
Newbie
Oct 6, 2020
1 posts
1 upvote

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?
12 replies
Sr. Member
Sep 14, 2012
822 posts
499 upvotes
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
614 posts
373 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.
Sr. Member
Sep 14, 2012
822 posts
499 upvotes
Montreal, QC
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.
Deal Fanatic
User avatar
Sep 21, 2007
5264 posts
607 upvotes
Winnipeg
day trade in a cash account.
"An essential aspect of creativity is not being afraid to fail." -- Edward Land
Member
May 2, 2019
359 posts
344 upvotes
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.
Sr. Member
Sep 14, 2012
822 posts
499 upvotes
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.
Jr. Member
Sep 27, 2020
120 posts
86 upvotes
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.
Jr. Member
Sep 27, 2020
120 posts
86 upvotes
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
614 posts
373 upvotes
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.
Sr. Member
Sep 14, 2012
822 posts
499 upvotes
Montreal, QC
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.
Jr. Member
Sep 27, 2020
120 posts
86 upvotes
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
614 posts
373 upvotes
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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