Personal Finance

Question About Taxation Regarding Stock Trading

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[OP]
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Question About Taxation Regarding Stock Trading

Hello. I am an active stock "trader" who buys and closes many different stocks usually within 1-4 weeks after the position's opened. I only trade American stocks.

Taxation regarding stock trading has always been confusing for me, as I've had people tell me that active trading should be filed as Business Income, and doesn't require any supporting documents.

On the other hand, I've had others tell me that they should be filed as Capital Gains, depending on certain factors that are well beyond my understanding.

If I want to keep things simple, may I simply calculate my overall 2017 net profit (in CAD) and put it down as Business Income? Thank you very much.
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Jr. Member
Aug 29, 2011
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GTA
Likely you would be considered a Trader. As such your income or loss should be reported as business income.
You can complete CRA form T2125 for your business activity. Keep it mind you may have other expenses such as computer and home office you may want to claim.
The Duke
[OP]
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garytheduke wrote: Likely you would be considered a Trader. As such your income or loss should be reported as business income.
You can complete CRA form T2125 for your business activity. Keep it mind you may have other expenses such as computer and home office you may want to claim.
Thank you very much for your assistance. As I have a tax accountant who files my taxes for me, I will simply tell them to file my trades as Business Income.

+1
Deal Addict
Jan 16, 2016
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garytheduke wrote: Likely you would be considered a Trader. As such your income or loss should be reported as business income.
You can complete CRA form T2125 for your business activity. Keep it mind you may have other expenses such as computer and home office you may want to claim.
I would not consider OP a trader given this isn’t his primary source of income nor is he day trading. Holding a security for a week is more than enough time to consider OP a casual investor and not a trader. -1.
[OP]
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Altera wrote: I would not consider OP a trader given this isn’t his primary source of income nor is he day trading. Holding a security for a week is more than enough time to consider OP a casual investor and not a trader. -1.
Hello, thank you for your input. In your opinion, how should I file my taxes for my trades?

As you say, I do not day trade (except maybe once every 100 trades; seldom and very situational), and the average hold time is around 2-3 weeks for a position. More often longer than shorter.
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Jul 3, 2006
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Ichirou wrote: Hello, thank you for your input. In your opinion, how should I file my taxes for my trades?

As you say, I do not day trade (except maybe once every 100 trades; seldom and very situational), and the average hold time is around 2-3 weeks for a position. More often longer than shorter.
Capital Gains.. Do you have a day job? Also if you have more then 100 k in USD stocks over the night you have to fill out another form t1135
[OP]
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J_u_n_i_o_r_3 wrote: Capital Gains.. Do you have a day job? Also if you have more then 100 k in USD stocks over the night you have to fill out another form t1135
Thank you for your input. I will inquire with my tax accountant regarding Capital Gains then.

I do not have a salaried job at the moment, if that is what you are asking. Self-employed. I do not have over $100 grand in equities.
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Ichirou wrote: Thank you for your input. I will inquire with my tax accountant regarding Capital Gains then.

I do not have a salaried job at the moment, if that is what you are asking. Self-employed. I do not have over $100 grand in equities.
Its better if you use capital gain...If you declare business income its hard to go back...
[OP]
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J_u_n_i_o_r_3 wrote: Its better if you use capital gain...If you declare business income its hard to go back...
I see. Very well, I will consult with my tax accountant regarding which method of taxation (Capital Gains or Business Income) is better for my situation. Thank you for your assistance.
Deal Fanatic
Jul 1, 2007
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This is not even in question: you file as capital gains until the CRA tells you otherwise.

Just to clarify to the OP: there is no advantage to filing as a business. It's punishment if you have to.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
[OP]
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Thalo wrote: This is not even in question: you file as capital gains until the CRA tells you otherwise.

Just to clarify to the OP: there is no advantage to filing as a business. It's punishment if you have to.
I see. In that case, which particular form(s) are required for filing as Capital Gains? Is it part of the default tax package? What do I do if there are many different trades (companies) to report?
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Ichirou wrote: I see. In that case, which particular form(s) are required for filing as Capital Gains? Is it part of the default tax package? What do I do if there are many different trades (companies) to report?
Shouldn't your accountant file this form?
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Apr 23, 2009
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With less than $100K in equity, it would hardly generate enough income for trading to be called primary source of income unless you are doubling your money every year Winking Face
I would say treat it is capital gain, loss.
Ichirou wrote: Thank you for your input. I will inquire with my tax accountant regarding Capital Gains then.

I do not have a salaried job at the moment, if that is what you are asking. Self-employed. I do not have over $100 grand in equities.
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Dec 24, 2007
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The main criteria for determining whether trading is business or capital gain is "your intention at the time you acquired the securities". CRA and the courts will take the following into account:
  • the frequency of the transactions;
  • the duration of the holdings;
  • the intention to acquire the securities for resale at a profit;
  • the nature and quantity of the securities; and
  • the time spent on the activity.
So depending upon the number of trades you make a year, how long you hold the shares, and the types of securities you could be considered a trader and should be reporting Business income. Since these are not Canadian securities, you are not able to use the option to elect to treat all gains as capital gains. Here's a tax case where the taxpayer had 600 trades in 5 years and was considered a trader WHEN TRADING PROFITS ARE INCOME
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If you are trading for income, then it is not capital gains.

I'd still try that route, but be prepared that the CRA may determine otherwise and you would be on the hook for the tax difference (and possibly interest). Definitely see what your accountant recommends.

On your return, you don't need to show every trade, but you should have a record of every trade when they ask for it to show how you reached the reported ACB and gains.
[OP]
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J_u_n_i_o_r_3 wrote: Shouldn't your accountant file this form?
Yes, I am simply acquiring clarification so that I can properly inform my accountant about the nature of the trades.
ruchir wrote: With less than $100K in equity, it would hardly generate enough income for trading to be called primary source of income unless you are doubling your money every year Winking Face
I would say treat it is capital gain, loss.
Thank you for your input. I began casually investing in stocks early last year with a small amount of initial capital, but invested more capital later on in Q4 once I got comfortable. After the end of 2017, I earned around half of my total capital in just that quarter. If this trend remains consistent, I can likely compound and earn more than double my capital every year. (Or so I hope xD)

If I do end up doubling my money, will it then be considered my primary source of income? Or does it need to be more than what I am currently earning now outside of the trading?
WetCoastGuy wrote: The main criteria for determining whether trading is business or capital gain is "your intention at the time you acquired the securities". CRA and the courts will take the following into account:
  • the frequency of the transactions;
  • the duration of the holdings;
  • the intention to acquire the securities for resale at a profit;
  • the nature and quantity of the securities; and
  • the time spent on the activity.
So depending upon the number of trades you make a year, how long you hold the shares, and the types of securities you could be considered a trader and should be reporting Business income. Since these are not Canadian securities, you are not able to use the option to elect to treat all gains as capital gains. Here's a tax case where the taxpayer had 600 trades in 5 years and was considered a trader WHEN TRADING PROFITS ARE INCOME
Thank you for your detailed input. Personally, I would call myself a trader, but obviously, that's subject to the criteria that the CRA refers to.

To answer your criteria directly: I had a bit over 100 trades last year. On average, they were held for around 2-3 weeks, but more often longer than shorter. My intention is, obviously, to make a profit (lol). By nature, I assume you are asking whether they are simply publicly-traded shares. If so, then yes. However, the quantity for each trade is never more than 100 shares each, as my budget for stock trading is not very large. I have been trading for around a year or so, give or take.
don242 wrote: If you are trading for income, then it is not capital gains.

I'd still try that route, but be prepared that the CRA may determine otherwise and you would be on the hook for the tax difference (and possibly interest). Definitely see what your accountant recommends.

On your return, you don't need to show every trade, but you should have a record of every trade when they ask for it to show how you reached the reported ACB and gains.
Yes, I am trading for profit. If by income you mean whether it is my primary source, then I would not consider it to be so. It is secondary at the moment. My brokerage does provide me with a detailed summary of all trades I made, so it will be helpful for evidence purposes.
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Ichirou wrote:
Yes, I am trading for profit. If by income you mean whether it is my primary source, then I would not consider it to be so. It is secondary at the moment. My brokerage does provide me with a detailed summary of all trades I made, so it will be helpful for evidence purposes.
Doesn't matter if it is your primary or secondary income. It sounds to me like your intention is to earn income as a frequent trader and therefore the gains should be treated as business income instead of capital gains.

I'd consider going the capital gains route, but if your intent is to continue then the CRA will likely consider it business income. In which case they may reassess and you will owe the difference plus interest.

Good luck with the trading.
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Jan 16, 2016
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don242 wrote: Doesn't matter if it is your primary or secondary income. It sounds to me like your intention is to earn income as a frequent trader and therefore the gains should be treated as business income instead of capital gains.

I'd consider going the capital gains route, but if your intent is to continue then the CRA will likely consider it business income. In which case they may reassess and you will owe the difference plus interest.

Good luck with the trading.
He’s not a trader. Why is everyone so hung up on the fact that just because he makes multiple transactions involving multiple securities that he’s a trader... For all we know he could be buying 5 shares of each security which would be listed in a mutual fund. OP is by no means a day or swing trader and it isn’t is primary source of income so he can’t possibly be classified as a trader.

Otherwise whenever someone loses money it’s a capital loss subject to carry forward and whenever someone makes money, even if nominal compared to the principal, it’s income...
[OP]
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don242 wrote: Doesn't matter if it is your primary or secondary income. It sounds to me like your intention is to earn income as a frequent trader and therefore the gains should be treated as business income instead of capital gains.

I'd consider going the capital gains route, but if your intent is to continue then the CRA will likely consider it business income. In which case they may reassess and you will owe the difference plus interest.

Good luck with the trading.
Out of curiosity, how large of a difference am I looking at between Business Income and Capital Gains?

I'm not sure what the CRA classifies as a "frequent" trader, but as I've mentioned, I made a bit over 100 trades last year.
Altera wrote: He’s not a trader. Why is everyone so hung up on the fact that just because he makes multiple transactions involving multiple securities that he’s a trader... For all we know he could be buying 5 shares of each security which would be listed in a mutual fund. OP is by no means a day or swing trader and it isn’t is primary source of income so he can’t possibly be classified as a trader.

Otherwise whenever someone loses money it’s a capital loss subject to carry forward and whenever someone makes money, even if nominal compared to the principal, it’s income...
My stocks are primarily blue chips which are mostly part of the S&P index. The quantity of shares has increased since I first traded, but remains well under 100. Most under 50 shares.
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Ichirou wrote: I see. In that case, which particular form(s) are required for filing as Capital Gains? Is it part of the default tax package? What do I do if there are many different trades (companies) to report?
Answer to your first question is Schedule 3. Answer to the second question is Schedule 3 Addendum.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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