Posted on: 25-01-11 14:17:34
Anybody have an idea on what the rules are around stock-trading on a TFSA account? I'm seeing mixed responses based on my research on what happens if you buy stocks and then sell them very quickly (say in a week or two). As I understand it, stock sales within a month of purchase are classified differently for income tax purposes (i.e. income vs. capital gains).
For simple stock purchases and sales under TFSA (i.e. no shorting or other complex/advanced manoeuvres), are there any timeframe guidelines or actions that can make your income taxable?
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Quote:
Originally posted by BlueLobster
Anybody have an idea on what the rules are around stock-trading on a TFSA account? I'm seeing mixed responses based on my research on what happens if you buy stocks and then sell them very quickly (say in a week or two). As I understand it, stock sales within a month of purchase are classified differently for income tax purposes (i.e. income vs. capital gains).
For simple stock purchases and sales under TFSA (i.e. no shorting or other complex/advanced manoeuvres), are there any timeframe guidelines or actions that can make your income taxable?
I do have tax free (stocks) trading account but am not aware of any tax obligations of short term trading. Please do share if you happend to find out any.
Quote:In non registered accounts, you have to avoid being deemed a day trader by CRA because that has a different implication.
Originally posted by BlueLobster
Anybody have an idea on what the rules are around stock-trading on a TFSA account? I'm seeing mixed responses based on my research on what happens if you buy stocks and then sell them very quickly (say in a week or two). As I understand it, stock sales within a month of purchase are classified differently for income tax purposes (i.e. income vs. capital gains).
For simple stock purchases and sales under TFSA (i.e. no shorting or other complex/advanced manoeuvres), are there any timeframe guidelines or actions that can make your income taxable?
See:
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm
However, inside a TFSA no type of return is taxable, so it shouldn't matter whether the return is deemed capital gains or regular income.
The superficial loss rule also doesn't apply to TFSA since you cannot claim losses anyway.
I personally do not see any issue with trading too frequently inside the TFSA.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Quote:
Originally posted by pratickm
In non registered accounts, you have to avoid being deemed a day trader by CRA because that has a different implication.
See:
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm
However, inside a TFSA no type of return is taxable, so it shouldn't matter whether the return is deemed capital gains or regular income.
The superficial loss rule also doesn't apply to TFSA since you cannot claim losses anyway.
I personally do not see any issue with trading too frequently inside the TFSA.
I think the confusion stems from the CRA flagging your income as business income if you're constantly day-trading (not sure how the CRA defines this). See this thread (page 3) and some of the speculations around this.
http://canadianmoneyforum.com/archive/index.php/t-469.html
This does not apply to me personally and I agree with you that the CRA should not have issues with short term trading you or I do, but some of the "pros" might get nailed. And if not that, it'll trigger a blanket policy changes on the TFSA to address that piece, especially as the contribution limit grows over the years (TFSA wasn't intended to be a trading account)
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Quote:True, but that is an extreme case for ordinary investors being discussed.
Originally posted by BlueLobster
I think the confusion stems from the CRA flagging your income as business income if you're constantly day-trading (not sure how the CRA defines this). See this thread (page 3) and some of the speculations around this.
I can think of only two times when CRA can deem this as "business income":
- If you are deriving most of your livelihood via TFSA trading profits
- If you are a professional such as financial advisor and are deriving your livelihood via TFSA trading profits.
For most investors, either of this situation is very unlikely, esp. since the max anyone could have contributed into TFSA at this point is $15,000.
It is pretty hard to derive a sustained income with an investment of $15K.
That would be a good problem to have
Also, thinking through this, if CRA were to deem the returns as business income, you could turn around and deduct losses and expenses too.
so if TFSA trading is your business, well then, the computer is a business expense, the Globefund subscription is a business expense, etc.
Quote:Oh, I am convinced that the TFSA rules will change sooner or later.
And if not that, it'll trigger a blanket policy changes on the TFSA to address that piece, especially as the contribution limit grows over the years (TFSA wasn't intended to be a trading account)
They will either reduce the contribution limit or constrain the growth in other ways.
There is way too much potential tax savings and income splitting for people through the TFSA
And the govt. does not like that. At all.
I say enjoy it while it lasts.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Quote:
Originally posted by ashedfc
Quote:
Originally posted by BlueLobster
(TFSA wasn't intended to be a trading account)
This statement is not true. Its exactly same as RRSP or even RESP, where you can trade (as many times you want, second to second/ minute to minute/day to day trader, or whatever- it doesn't matter).
The ability to do this does not indicate the intent behind the accounts. The intent is clear in name "Tax Free Savings account". Savings is key here, as is tax-free (at least as far as intent is concerned).
I read an article that stated some research figure that 70% of day-traders end up on the losing side of the equation (either part or the full amount). This is not called savings.
http://www.celi.ca/daytrading-dans-le-celi-partie-2/ (Translate in English, read the last para)
Quote:
TFSA was meant to promote the savings, in a debt based society.
Correct. Conventional wisdom will tell you that trading accounts aren't exactly savings vehicles. This is why the vast majority of people don't trade individual stocks on their RRSPs or RESPs, rather invest in mutual funds or GICs etc.
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Quote:
Originally posted by pratickm
For most investors, either of this situation is very unlikely, esp. since the max anyone could have contributed into TFSA at this point is $15,000.
Agreed. In a couple of years though, it'll go to 25K. And say you're some "poor sob" who hits the jackpot and magically quadruples the 25K "investing" in penny stocks. Boy, would it suck to then have the CRA come demand a big piece of the pie
.Will be interesting to see how this plays out, I likewise think there's changes coming, timeframe TBD.
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