Day trading taxes in Canada, how exactly do you do it and can you trade with a TFSA account since I'm a proud Canadian trader, I've gotten tons of questions and comments on how do we do taxes for day trading income here in Canada? So we do not? God forbid anger, the CRA, Canadian Revenue Agency and trust me. You do not want the CRA going after your app before we started here is a mandatory disclaimer. I am NOT a CPA nor a financial advisor. I'm not licensed.

I don't know anything about taxes. Everyone's tax situation will be grossly different. It's your own responsibility to ensure all your taxes are filed correctly and legally by a tax professional. I have no idea I'm talking about I'm bad at math and I didn't even get straight A's in high school, okay.

Okay, I lied. I totally did get straight A's in high school, but just a stole, not like eight pluses and if you're Asian, you know that ace stand for average. I've never actually prepared and done any of the taxes myself. I've always consulted my CPA every single year to do the taxes for me, but what a purpose of this highly requested video strictly for entertainment purposes.

Of course, I booked a business tax consultation appointment with my CPA to discuss day trading taxes in Canada, so this video is simply just why I learned after the one-hour consultation session. It's not meant as a financial advice nor tax advice. You should always talk to a tax professional when you're filing your taxes, especially when it comes to something as complicated a state rating income, whether it should be counted as capital gains, which is only 50 % taxable or as a business income, which is a hundred percent. Taxable, this video you're watching right now really took a lot of time and money to make.

I had to pay for a business tax consultation session with my CPA, prepare my own notes and do my own research with questions and then take note throughout our one-hour session. At her office, all that's just to make this 10 to 15-minute video. So if this video helped you out in any shape or form or my bath, jokes are so bad that you laugh just a little bit. Oh, I ask is for you to drop a like on this video.

That would really mean the world to me and make that expensive tax consultation session well worth it. So it's trading income considered capital gains, income or business income. This is perhaps the biggest questions. Many Canadian traders have because business income is just like your employment income.

Let's say you make ten thousand dollars from trading and that's considered business income and you're in a twenty percent tax bracket. That means that you have to pay the CRA two thousand dollars in taxes and you take home is only eight thousand dollars, whereas if you are filing the same ten thousand dollars trading income as capital gains, the only 50 % of that income is taxable. So you would pay twenty percent tax rates and only five thousand dollars, so that equates to paying a CRA only one thousand dollars in taxes, and you get to keep the remainder nine thousand dollars to answer that important question of whether you're day trading income should be Considered business or capital gains, you first need to find out whether you qualify as a professional day trader or an investor, and no you cannot just decide. I yourself and report only 50 percent of your trading income, just because you say so, life doesn't work like that.

It has to be under the almighty CRS rules, whether you qualify as a day trader or an investor. It's mostly defined, but not limited to these four factors. How often do you trade? How long you hold the securities for the amount of time you spend on trading and studying the market and how substantial your trading income is so for the first two definitions when we're day trading, we're buying a position and selling it really quickly. Within the same day, that's why it's called day trading, not monthly or weekly trading.

As a day trader. I do part paid in the market every single day that the markets open most days, I'd make one and ten trade today, but there would be day so I make more than 30, 50 60 trades or even more because day trading is my business, whereas if I Was an investor I would probably only be making one to five trades per month, maybe I'll be placing an order to buy some Tesla shares a couple months ago when a stock crashed below $ 200 and perhaps I'll be selling those shares right now when Tesla has Just reported earnings beats and breaking above all-time highs at $ 600, an investor who is claiming capital gains, isn't making buying and selling transactions every single day. He or she is likely holding the securities for a much longer period of time, sometimes for weeks months and even years, because that security is meant as an investment for the long-term growth of a company. Not just a trading vehicle for him.

To take advantage of the short-term price fluctuations now for the third question: how much time do you spend on trading or even just studying the market? A day trader by definition, is most likely spending the majority of his or her time in front of a computer. Following all the news staring at each tick on the candlesticks, on their screens and alone at home in front of a table for smokes, beer cans and drowning in hilarious, social media comments and rejections on dating apps. Oh wait! That's just me. Generally speaking, a day trader will be spending the vast majority of time studying a market like I do, like I mentioned in these two videos, I spent two hours before the market opens preparing for my trading plans and I'll actively trade for the first few hours of The open and near the market closes and I'll put in an extra two or three hours in the evenings, studying the market as well.

So that's amount of time. A day trader generally spends on the market is equates to a normal 9:00 to 5:00 or 9:00 to 7:00 job, because they're in a business of profiting from the volatility on a daily basis. Whereas if you were in, you, probably spend the majority of your daily hours. On your employment job or your other business not related to trading, and you will only have a couple of hours on the weekends or on a monthly basis for you to catch up on the market and look for potential buying and selling opportunities for your long term.

Investment, the fourth factor, the CRA, takes into consideration when looking at your trading income is whether you click the like button at the bottom of this video. Sorry, sorry, I just had to do it. That was like perfect opportunity. So the fourth factor the CRA looks at is how substantial your trading income is now this one factor in comparison with all the other three I mentioned earlier, it's a little bit of a gray area, because how the word substantial is defined is almost always gon na, Be different for each individual, let's say: you're working a full-time job as an engineer making a hundred twenty grand a year, and you make ten thousand dollars from day trading.

Just two days a week before you go to work, that's trading. Income of ten thousand dollars may not seem substantial in comparison to a full-time employment income. However, if you were a stay-at-home parent or if you were students - and you don't have a full-time job or any other sources of income, you day, trade them make ten thousand dollars, that's trading income or be more likely to be considered substantial under the CRA definitions. So, that's why all our tax situation will be grossly different.

It's important to talk to a tax professional regarding your own personal trading income. You may have realized by now. Yes, I am a full-time day trader, so that means a hundred percent of my income is considered business, income and they're all taxed, I'm a full marginal tax rate, and I have a feeling if you're watching this video, you probably have to fire your trading income as Business income as well just saying but hey filing your trading profit, US business, isn't really that bad. Well, besides paying more taxes and you and I had hoped for because there are pros and cons to filing, I am as capital gains or as a business.

So let's talk about filing as capital gains. First, if you are a long term investor or a casual swing trader, who met the four factors we mentioned earlier, the advantage of doing so would be, of course, only 50 % of that income will be taxable, but the biggest disadvantage is that you cannot write off Any of your business expense against that capital gains income. So no Trading Commission's borrow fees, no equipment, write-off, nada whatsoever. You can only write off your capital losses against your capital gains.

So that's say you had some capital loss from real estate of $ 2000. So you can write that off against your $ 10,000 capital gains from the stock market, so your true capital gains will be $ 8,000 and only 50 % of that will be taxable another thing to remember: if you're filing capital gains is the superficial loss rule or The 30-day rule here in Canada, that means, if you saw the stock for a loss and you buy it back within 30 days. You cannot claim the loss for tax purposes. This rule, of course, is in place to prevent investors from manufacturing a loss in order to claim tax deductions on their capital gains, so make sure to keep that in mind.

Now, let's talk about filing your day, trading profit as a business income you'll be likely filing that under self-employment or as a sole proprietor. And yes, that means a hundred percent of your trading income is fully taxable instead of only fifty percent, but the amazing advantage of filing as a business income is in a tax write-offs, almost anything that you're using to make your day trading profit can be claimed as Business expense against your income, that includes your broker: Commission scanners, news alerts, trading, DVDs, your internet bill and even part of your mortgage or rent. If you work from home, so the money I spend every year on trade ideas been Zynga and the super powerful computer that everyone is complaining in the comment section that I don't actually need. These are all tax, write-offs legally, of course, and another sweet advantage.

Is that a hundred percent of your any other business losses can be written off against your trading income as well? So let's say you made ten thousand dollars from trading, but you lost two thousand dollars from your Lamborghini rental service because apparently limbo suck - and I, like my Civic, more your true taxable business income - would be eight thousand dollars and the same thing works. The other way. As well, you can write up your trading losses against your other business income. If you made a hundred grand from employment income and another ten thousand dollars from trading when you file that under capital gains without any tax write-offs, you pay twenty seven thousand six hundred sixty nine dollars in taxes here in bc, whereas if you don't qualify to file As capital gains and you file that as self-employment income, you pay almost two thousand dollars more in taxes, but remember those sweet write-offs I mentioned earlier.

Let's say you spend three thousand dollars on DVDs broker commissions and computers. This year you can write that three thousand dollars as expense against your ten thousand dollars income. So only seven thousand dollars of business income is taxable and you'll, be paying twenty eight thousand four hundred thirty-five dollars in taxes so in comparison to filing US capital gains. It's really not that bad, okay, okay, it's pretty bad! Actually, Who am I kidding? That's like almost a thousand dollars of difference.

That's seventy six! Ninety two bowls of Japanese ramen that we could have bought right there now that we're talking about the a trading as business income. Another topic - that's really important to make note of is trading in your TFSA. I get asked this question a lot. Can you trade in your TFSA account the quick and easy answer is no.

If you're trading behavior, according to the four factors we talked about, constitutes as business income t FS, a account stands for tax-free savings account, it's meant for you to use as personal savings and investing not to be used for business activities. There has been instances of the CRA challenging individual CFA account in court because they assess their trading activities within the TFS account to be closer to business income rather than investing with savings. But if you have talked to a CPA regarding your TFSA activities and they think that it's closer to investing - maybe you just swing trade once or twice a month and you still have a full-time job, then there's nothing to worry about using your TFSA account again whether You are a day trader or a swing trader, the most defining factor that tells the CRA whether you're tweeting income should be capital gains or business income is first, how often you trade and how long you hold the positions for each buying and selling activity that you Perform on your broker is recorded on a tee 500 8 form, which is a tax form that records your name, social insurance number, the kind of securities you bought or sold, and the dates of those transactions. And yes, you already know the CRA will have access to the tax slips again.

It's up to you to talk to a tax professional regarding your situation. Do not cheap out on this pain. Taxes means you're making money. It's a good thing: if you want to live in this amazing country and enjoy all the social benefits, then you should pay your dues again.

You do not want the CRA going after you. If this video helped you out and clarify some questions you had regarding day trading taxes in Canada, please remember to drop a like and subscribe to see more day trading content on this channel. Thank you guys so much for watching. As always, I'm the humble trader and I'll see you guys next week.