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Across the country, everyone is looking for the best ways to save and grow their money. Some Canadians are actively day trading stocks and investments, taking advantage of short-term market opportunities.

Day trading can generate impressive returns in a very short time. However, while investments can lead to great profits, you can also lose money easily. In fact, according to a study by RBC, those who tried to time the market perfectly generally didn’t make as much profit as those who simply stayed in the market over the long term. There’s also a steep learning curve and it can be quite time-consuming. That is the nature of active trading.

While it may seem intimidating at first, with the proper research and risk analysis, you can invest your own money and generate income by buying and selling shares on the stock exchange. However, if you’re someone who trades a lot and generates regular income from it, you must consider the tax implications. 

What Is A Day Trader?

A day trader is someone who purchases and sells stocks over a brief period (typically within a day, as the name suggests). The goal of day trading is to receive small amounts of profit each day, which ends up being a substantial amount of cash flow in the long term.

Day Trading As A Business: TFSA and RRSP Will Not Shelter Your Capital Gains

Day traders typically work full-time at it. It is a job because it involves a significant amount of knowledge, strategy, and, of course, time to be successful.

The income you earn from day trading can be considered business income by the CRA. The CRA identifies day traders as a business when there’s a high amount of buying and selling and when the holding period for security is relatively short 

Another indicator for those who are investing as a business is their degree of knowledge and experience with securities markets. For instance, if you’re a licensed securities representative or have formal certifications. If you’re considered a business, you’ll need to report your income and capital gains as a business. 

Also, every time you buy or sell a security, a T5008 slip is created. This is matched to your social insurance number and name. This matching permits the CRA to match it with your tax return. 

Overall, if you buy and sell investments daily like a securities dealer, and your goal is to use small price fluctuations to make short-term profits, the income should be reported as a business.

Day Trading As A Novice

You do not have to be an expert to be a day trader in Canada. A normal, Canadian investor will have a significantly smaller turnover rate (the time between buying and selling a given stock).

A novice using their registered retirement savings plans (RRSP) or tax-free savings accounts (TFSA) accounts can protect their profits from capital gains tax. This type of investor normally has another job and doesn’t day trade full-time as a professional. Typically, they buy and hold securities for the long term. 

Does Investing Affect Your Credit In Canada?

No, investing does not directly affect your credit in Canada. However, if you get a margin account, it could affect your credit. A margin account is a type of investment account that gives you a line of credit to buy stocks. As such, when opening this account, you’ll generally be hit with a hard inquiry which could negatively impact your credit.

If you have a margin account, you must keep tabs on your credit, which you can do for free using Compare Hub. Similarly, it’s important to consider the risks involved with borrowing to invest. If you lose a lot of money and are unable to pay it back, you could be left with a lot of debt. This can not only impact your credit but also your overall finances.

Day Trading Taxes In Canada

The account you use to make trades can affect how you’re taxed in Canada.

Tax Rules On Day Trading In A TFSA

First things first, the CRA prevents any business activity from occurring within a TFSA. However, it is still possible to day trade within your TFSA as a novice investor. But, you must use extreme caution.

Investment income in a TFSA is tax-exempt, but not if it’s considered business income. If the CRA notices too much trading activity within your TFSA, it may be flagged. There’s no hard-and-fast rule for this, so err on the side of caution.

If the CRA determines you are a professional day trader, all of your capital gains will be considered business income. As a result, all your capital gains could be taxed, even within a TFSA.

Tax Rules On Day Trading In A RRSP

Investment income within an RRSP is tax-deferred, whereas TFSAs are completely exempt. Similar to trading in your TFSA, RRSPs are meant for personal long-term investing. It is not used to generate business income, and the CRA will flag you if your trading activity is very active.  

How Are Day Trading Capital Gains Taxed? 

Navigating how day trading capital gains are taxed can be tricky. However, below is a breakdown for you.

Day Trading Taxes In Canada As A Business

If the CRA deems your day trading income as business income, you won’t be eligible to claim the capital gains tax. Similarly, if you’re a sole proprietor, the investment income you earn from day trading must be reported as business income on your personal income tax return

If you’re a corporation, the investment income you earn from day trading must be reported on your corporate income tax return. Any losses you incur from investing can be used as a tax deduction. However, there may be certain restrictions and limitations. 

Day Trading Taxes In Canada As An Investor

If you’re buying and selling securities as a source of passive income, you can report capital gains and losses on your taxes. Half of your gains up to $250,000 and two-thirds of profits over $250,000 will be taxed at your typical tax rate.

Gains are achieved when you sell a stock for more than you originally bought it for. It’s important to note that if the reverse happens, it is considered a capital loss and can be used to reduce the amount of your capital gains that are taxed. If you don’t use all of your capital losses, you can carry it forward to the next tax year. 

Final Thoughts On Day Trading Taxes In Canada

Day trading does present a unique opportunity and career for financially minded individuals and advanced investors, but it is important to understand the tax implications if you choose to pursue that route. For regular investors looking to generate income, it is also important to consider whether they might be day traders in the eyes of the CRA.

Day Trading Taxes In Canada FAQs

Is there a difference between swing trading vs day trading?

Day trading and swing trading are both investment strategies. Day traders make short-term moves and typically buy and sell equity within one day. Swing traders make moves within a span of a day to a couple of weeks. Swing traders make fewer trades over long periods and wait for specific events or market shake-ups. Another key difference is that swing traders end up paying fewer transaction fees because it typically takes longer to execute.

What are capital gains?

A capital gain is the amount of money earned when you sell a stock for more than you bought it for.

What is the capital gains tax rate?

Only 50% of your capital gains up to $250,000 are taxed as a regular investor, and two-thirds of profits over $250,000 are taxed. The tax rate at which your capital gains are taxed is contingent on your tax bracket.

Can a day trader claim capital gains tax?

In the eyes of the CRA, if day trading is your full-time job and how you make a living, the income you earn will be considered business income. As such, you’re not likely to be eligible to claim capital gains because it is considered a business income.

How are stocks taxed in Canada?

The amount you pay in taxes is contingent on your tax bracket as well as if you are considered a day trader or a regular investor in the eyes of the CRA.
Caroline Macdonald avatar on Loans Canada
Caroline Macdonald

Caroline is a 4th year commerce student at Memorial University of Newfoundland pursuing a focus in finance. She is a member of Memorial University’s student managed investment fund and acts as a sector manager in the industrial and financial sectors. Caroline joined the Loans Canada team in 2021 and rediscovered her passion for writing and media creation. In her free time she enjoys spending time with friends and family and reading.

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