Day Trading Taxes In Canada

Day Trading Taxes In Canada

Written by Caroline Macdonald
Fact-checked by Caitlin Wood
Last Updated August 24, 2022

Across the country, everyone is looking for the best means to save and grow their money. While many have a regular savings account, more Canadians are starting to invest. Investing is one of the best ways to grow your money. 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.

If you’re someone who trades a lot and generates regular income from it, it’s important you consider the tax implications. 

What Is A Day Trader?

A day trader is someone who purchases and sells stocks over a brief period of time (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 traders typically work full time as the job involves a significant amount of knowledge, strategy, and, of course, time in order to be successful.

Day Trading As A Business

The income you earn from day trading can be considered as business income by the CRA. The CRA identifies day traders as a business when there’s a high amount of buying and selling and the time in between buying and selling a particular stock will be relatively short. 

Another indicator for those who are investing as a business is their knowledge and experience with securities markets. If you’re considered a business, you’ll need to report your income and capital gains as a business. 

It is important to note that every time a security is bought or sold, a T5008 slip is created and attached to your social insurance number and name, which 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 trade in Canada. A normal, Canadian investor will have a significantly smaller turnover rate (the time between buying and selling a given stock). Most novice day traders use tax-free savings accounts like an RRSP or TFSA. This type of investor normally has another job and doesn’t day trade full-time as a professional.

Tax Rules On Day Trading In A TFSA

First things first, the CRA prevents any business activity from occurring within a TFSA, so if you are a full-time, professional day trader, all of your capital gains will be considered business income, not investment income, and must be taxed. 

It is still possible, as a novice investor, to day trade within your TFSA, but you must use extreme caution. If the CRA notices too much trading activity within your TFSA, it will possibly be flagged and you will be taxed on all capital gains. Investment income in a TFSA is tax-exempt.

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 investing, not generating 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 a little tricky but below we will break it down for you.

As A Business

If the CRA deems your day trading income as business income, you may not be eligible to claim the capital gains tax. If you’re a sole proprietor, the investment income you earn from day trading will need to be reported as business income on your personal income tax return. 

If you’re a corporation, the investment income you earn from day trading will need to 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. 

As An Investor

If you’re buying and selling securities for a source of passive income, you can report capital gains and losses on your taxes. 50% of your gains 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 is also important to note that if the reverse happens, that 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. 

Day Trading Tax 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, whereas swing traders make moves within a span of a day to a couple of weeks. Swing traders make fewer trades over long periods of time and wait for market shake-ups or events. Another key difference is that swing traders end up paying fewer transaction fees because it typically takes longer to execute.

What is a capital gain?

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 are taxed as a regular investor. 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 as 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. 

Bottom Line

Day trading does present a unique opportunity and career for financially minded individuals, 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 actually be day traders in the eyes of the CRA.

Rating of 4/5 based on 12 votes.

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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