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TFSA frequent trading

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  • May 20th, 2020 11:37 pm
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[OP]
Newbie
Jan 16, 2017
16 posts

TFSA frequent trading

Hello,


I read today that the CRA is auditing tfsa accounts. The criteria to define a tfsa that operates as a business are quit gray. Do you know anyone who was ever audited? how would the tax be applied ? I mean let's say you has 5 k in your account. Than you made it to 30 K on one stock, moved money to a different stock and ended up losing everything. Would you still owe tax money on the 25 k you made initially ? I am new to investing and was curious on how the whole system works.
62 replies
Deal Addict
User avatar
Oct 14, 2015
1343 posts
1181 upvotes
[O/P] No worries in your example. They're looking for blatant abuse of TFSAs.

From July 2017:
The CRA said it has been conducting TFSA audits since 2011 and has selected less than one per cent cent of accounts for review.

The audits have identified $75 million owed due to inappropriate use of TFSAs. The CRA said about 20 per cent of that amount came from audits which looked at TFSAs that were considered to be “carrying on a business,” such as day-trading stocks and other securities.

The rest of the money is owed due to “prohibited investments, swap transactions, and valuation concerns,” among other issues, the CRA said.

“The number is high. We know that there are people doing things with TFSAs that they maybe shouldn’t,” said Jamie Golombek, the managing director of tax and estate planning at the CIBC Wealth Strategies Group.
https://www.ctvnews.ca/business/cra-loo ... -1.3489026
Deal Addict
Jul 27, 2017
2180 posts
942 upvotes
I suppose for those with one-million in their TFSA may get an audit

anyone here with one-million in their TFSA?
Deal Fanatic
Jun 7, 2005
9015 posts
745 upvotes
Good question. I agree the TFSA is kind of confusing. If we can take money out of the TFSA account at anytime and the account balance goes up and down (gain/loss), how do we track what is the taxable amount ?
jullianwin wrote: Hello,


I read today that the CRA is auditing tfsa accounts. The criteria to define a tfsa that operates as a business are quit gray. Do you know anyone who was ever audited? how would the tax be applied ? I mean let's say you has 5 k in your account. Than you made it to 30 K on one stock, moved money to a different stock and ended up losing everything. Would you still owe tax money on the 25 k you made initially ? I am new to investing and was curious on how the whole system works.
Newbie
Feb 21, 2018
8 posts
1 upvote
Investment income earned by, and changes in the value of your TFSA investments will not affect your TFSA contribution room for current or future years. The TFSA limit is at $5,500 for 2018, the total room available in 2018 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $57,500.
Deal Expert
User avatar
Oct 26, 2003
35195 posts
4327 upvotes
Winnipeg
rdx wrote: Good question. I agree the TFSA is kind of confusing. If we can take money out of the TFSA account at anytime and the account balance goes up and down (gain/loss), how do we track what is the taxable amount ?
i think the amount you can take out is added to the next year as additional contribution room
[OP]
Newbie
Jan 16, 2017
16 posts
Thanks for the fast repose. I appreciate the input.
Last edited by jullianwin on Aug 30th, 2020 11:58 pm, edited 1 time in total.
Deal Addict
User avatar
Oct 28, 2016
1517 posts
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Albertariolandbec
I'm pretty sure anything you make and take out of a tfsa is not considered income and therefore cannot be taxed. Could be wrong
What's in your wallet?
Deal Fanatic
Jun 7, 2005
9015 posts
745 upvotes
zainchik wrote: Investment income earned by, and changes in the value of your TFSA investments will not affect your TFSA contribution room for current or future years. The TFSA limit is at $5,500 for 2018, the total room available in 2018 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $57,500.
Is it true that basically the only restriction is how much we can contribute into TFSA ? Whatever it grows in TFSA is tax free. If we take out $X amount from the TFSA, this $X will add back to the total contribution room that we can contribute later regardless how much your TFSA account has grown/lost ? And the loss in TFSA would be the same as the loss in RRSP account that you cannot claim as capital loss for tax return.
Deal Addict
Nov 6, 2015
3017 posts
2197 upvotes
Calgary
rdx wrote: Is it true that basically the only restriction is how much we can contribute into TFSA ? Whatever it grows in TFSA is tax free. If we take out $X amount from the TFSA, this $X will add back to the total contribution room that we can contribute later regardless how much your TFSA account has grown/lost ? And the loss in TFSA would be the same as the loss in RRSP account that you cannot claim as capital loss for tax return.
You are correct. However, please take into account that realized losses in a TFSA can potentially result in a permanent loss of contribution room.

For example, let's say you fund a new TFSA with 50K (assuming this is your first and only TFSA) and do some risky trades and lose 5K. You cannot claim this loss as a capital loss for tax purposes, and 5K of contribution room is permanently lost, since CRA tracks only deposits/withdrawals.

TL;DR : Make sure you build up a decent profit cushion in your TFSA before engaging in risky trades to avoid permanently losing contribution room. Easier said than done :)
Deal Addict
Jul 30, 2015
2818 posts
1830 upvotes
Toronto, ON
Million $$ balance in TFSA? Please teach me this magic.
Deal Fanatic
Jun 7, 2005
9015 posts
745 upvotes
canoek wrote: Million $$ balance in TFSA? Please teach me this magic.
I want to learn too ;) Growing $57k to $1 million in less than 10 years !!!
Newbie
Feb 21, 2018
8 posts
1 upvote
If you are day trading in a TFSA and earning your income from it, the CRA can deem your activities as operating as a business and therefore your account will no longer be treated as a TFSA and gains will be taxed accordingly. Any losses incurred in a TFSA cannot be claimed as a capital loss for tax purposes
Banned
Feb 18, 2019
16 posts
6 upvotes
I am getting contradictory advice. A buddy who works for CRA told me be careful if you do lot of trading and don't mess too much with TFSa.

I know any money earned either via interest , dividends or capital gains on stocks/mutual funds won't be taxed inside TFSA or when I withdraw from it.

But I am told if I do frequent trading and earn a bit, CRA can get on my case. Not day trading per se, but frequent selling and buying of stocks, mostly penny stocks under TFSA.

Because according to them, that's not really the purpose o a TFSA - and I am trying to game the system and avoid paying capital gains tax on stocks.

Is that true? Will I have to pay either income tax or capital gains tax, if I play around in the TFSA?

Articles like this :

https://www.moneysense.ca/save/investin ... -unlikely/

Why the CRA is targeting some TFSA accounts in

https://www.moneysense.ca/save/investin ... nts-court/
Deal Fanatic
Mar 21, 2010
5810 posts
2649 upvotes
Toronto
Crarfd2019 wrote: I am getting contradictory advice. A buddy who works for CRA told me be careful if you do lot of trading and don't mess too much with TFSa.

I know any money earned either via interest , dividends or capital gains on stocks/mutual funds won't be taxed inside TFSA or when I withdraw from it.

But I am told if I do frequent trading and earn a bit, CRA can get on my case. Not day trading per se, but frequent selling and buying of stocks, mostly penny stocks under TFSA.

Because according to them, that's not really the purpose o a TFSA - and I am trying to game the system and avoid paying capital gains tax on stocks.

Is that true? Will I have to pay either income tax or capital gains tax, if I play around in the TFSA?

Articles like this :

https://www.moneysense.ca/save/investin ... -unlikely/

Why the CRA is targeting some TFSA accounts in

https://www.moneysense.ca/save/investin ... nts-court/
It's not really specifically about TFSAs, it's that if you trade so frequently that it looks like trading is your business, they'll want to tax it like it's business income (and businesses can't have TFSAs). I don't think anyone knows the exact rules, the CRA doesn't say more than once a week or once a day is a business etc., but it's based on a combination of frequency and profit (because if you don't make huge profits, you probably won't get flagged for audit). How much is "frequent trading" and "earn a bit"?
Banned
Feb 18, 2019
16 posts
6 upvotes
UrbanPoet wrote: Most people arent successful enough at that type of trading to raise red flags.
Its the true geniuses that do.
Once your tfsa is double or triple the maximum limit, then you should worry.
A buddy of mine has around $ 350,000 in TFSA.

Dude just got lucky during the Weed stocks hype. But he did have the balls to invest in those high risk - high rewards type of stocks.

He even asked me to invest, but I chickened out and missed the boat, for me those stocks were just gambling and speculation and not really investing. Some of those Marijuana stocks did come crashing down after he cashed out. He got lucky with timing the market.
Penalty Box
Jun 24, 2015
4965 posts
1497 upvotes
0 downvotes
yes i too heard this. too much trading activity and they can tax you on it, they are the government after all and created the tfsa rules and they can change them if they like in the future
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