Investing

Made significant capital gains this year...any wealth or tax advisor recommendations to reduce taxes?

  • Last Updated:
  • Aug 21st, 2020 12:12 pm
[OP]
Newbie
Aug 18, 2020
2 posts
1 upvote

Made significant capital gains this year...any wealth or tax advisor recommendations to reduce taxes?

Throwaway or obvious reasons. I've made sizable returns so far in 2020 – around $800K. This is mostly unrealized capital gains from options in my margin account (LEAPs on your usual tech names that appreciated significantly).

I was wondering…if I do withdraw, say, even $500K, this would be roughly 2-3x my annual income. Some of my options will be expiring in a couple of months, so I'll have no choice but to close out those positions and get a significant chunk of realized gains sitting in my account.
  • Given my income from capital gains is significantly more than my annual income (from work), would CRA perceive that I derived most of my income from capital gains, and therefore tax 100% of the gains (vs 50% of the gains, as is usually the case)? I trade longer-dated options, usually 3-4 times a month. And hold for several months on average (so no day trading). My tax accountant has always reported my profits (and losses) as capital gains on past filings, and I've been audited by CRA once (resolved quickly, without any issue).
  • Does anyone have any recommendations for wealth or tax advisors, i.e. professionals I can speak to who could offer advice on tax reduction strategies? This is the first time in my life I'm seeing such massive gains, and it's quite unnerving (especially considering I used to make $2k/month in a not-too-distant past). At the same time, I've become wary of speaking to so-called tax "professionals" (my current tax accountant sucks, and has made a few mistakes in the past that required me to step in and micro-manage). But this is a time where I think I really do need to speak to someone who has worked with others in a similar situation.
Would appreciate any advice or recommendations.
9 replies
Deal Addict
User avatar
Dec 16, 2015
2120 posts
1584 upvotes
Canada
Lucky u....i was gonna do the same but...

Now hoping for another crash🤤
Deal Addict
Aug 12, 2004
4458 posts
2111 upvotes
Calgary
Congrats. You are in a bit of a dilemma as your gains are obviously quite big where it will be scrutinized, but will be up to the CRA to determine whether your trading is considered income. Your trading behaviour does not warrant it I don't think you have anything to worry about.

You should likely be fine to report your gains as capital gains, but do be prepared for an audit to show your trading. I think it will be obvious that you were just fortunate versus doing this as a job and income.

The thing is you really can't avoid taxes, there is no magic legal loophole like you have in the US (see 1031 exchange equivalent), as you mentioned your gains are already going to be realized. You can sell stocks you may have for a loss to realize a capital loss to soften the blow. You can only defer the taxes, which you can do by maxing out your RRSP. If your TFSA is not maxed out, you should move everything you can there for future gains to not be taxed.

RRSP is definitely your best tax deferral strategy to not have to pay taxes on it this year, and you can always withdraw from it at a later time should you need at time when your income and capital gains won't be so big. You are in a great position to be.
Deal Addict
Apr 5, 2016
4627 posts
3156 upvotes
Calgary/Vancouver
For the future though, you'll probably want to put all those investments in a holding company as a shareholder loan.
Current Fido and Rogers customer.
Ex Koodo customer.
Member
May 12, 2003
330 posts
205 upvotes
GTA
I don't know why you'd want to do that.

An investment corp that doesn't have 5 full time employees, will have to pay taxes at the highest bracket (until you pay dividend to the shareholder)

OP: There are several strategies around minimizing taxes, but a lot of those are done PRIOR to your investments. Post investment, you only have the general TFSA/RRSP/Loss Damming strategies.
bomber17 wrote: For the future though, you'll probably want to put all those investments in a holding company as a shareholder loan.
Deal Fanatic
Feb 4, 2015
6110 posts
2572 upvotes
Canada, Eh!!
Firebot wrote: Congrats. You are in a bit of a dilemma as your gains are obviously quite big where it will be scrutinized, but will be up to the CRA to determine whether your trading is considered income. Your trading behaviour does not warrant it I don't think you have anything to worry about.

You should likely be fine to report your gains as capital gains, but do be prepared for an audit to show your trading. I think it will be obvious that you were just fortunate versus doing this as a job and income.

The thing is you really can't avoid taxes, there is no magic legal loophole like you have in the US (see 1031 exchange equivalent), as you mentioned your gains are already going to be realized. You can sell stocks you may have for a loss to realize a capital loss to soften the blow. You can only defer the taxes, which you can do by maxing out your RRSP. If your TFSA is not maxed out, you should move everything you can there for future gains to not be taxed.

RRSP is definitely your best tax deferral strategy to not have to pay taxes on it this year, and you can always withdraw from it at a later time should you need at time when your income and capital gains won't be so big. You are in a great position to be.
Thought stocks were exempt, i.e. no tax deferral??
.......
July 13, 2017 to October 25, 2018: BOC raised rates 5 times and MCAP raised its prime rate next day each time.

2020: BOC dropped rates 3 times and MCAP waited and waited to drop its prime rate to include all 3 drops.
Deal Addict
Aug 12, 2004
4458 posts
2111 upvotes
Calgary
georvu wrote: Thought stocks were exempt, i.e. no tax deferral??
You are correct, I was checking on the capital gains rules and didn't notice that it only applies to real estate (there's a loophole, just not for stocks).
[OP]
Newbie
Aug 18, 2020
2 posts
1 upvote
yvrbanker wrote: 1. Stop trolling.
Sorry you think I'm trolling. Screenshot of unrealized gains as of now. This is all in USD.

To the others - thanks for the responses. I guess I'll have no choice but to plan for the worst case scenario (i.e. CRA may perceive this as business income, and tax 100% of the gains at my marginal tax rate, already at the highest bracket...).

Those who've been in this situation before...would you recommend cold calling or reaching out to "wealth" advisors from the big banks? I feel this would be like me having a huge "TARGET" above my head, and I'll only have vultures circling around me.
Deal Fanatic
Feb 4, 2015
6110 posts
2572 upvotes
Canada, Eh!!
notajoke wrote: Sorry you think I'm trolling. Screenshot of unrealized gains as of now. This is all in USD.

To the others - thanks for the responses. I guess I'll have no choice but to plan for the worst case scenario (i.e. CRA may perceive this as business income, and tax 100% of the gains at my marginal tax rate, already at the highest bracket...).

Those who've been in this situation before...would you recommend cold calling or reaching out to "wealth" advisors from the big banks? I feel this would be like me having a huge "TARGET" above my head, and I'll only have vultures circling around me.
You have time before next year.

Email some financial sites/bloggers.

Talk to folks who already have wealth advisors and see if they recommend any.

Maybe some folks can suggest a tax person?

There are firms that cater towards high wealth folks [entertainer, sports, business, etc.]. See if they can meet for hour or so. Do suggest even have to pay [under 1k].
.......
July 13, 2017 to October 25, 2018: BOC raised rates 5 times and MCAP raised its prime rate next day each time.

2020: BOC dropped rates 3 times and MCAP waited and waited to drop its prime rate to include all 3 drops.

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