Prior to 2011, I was an almost 100% buy-and-hold investor, with the odd stock trade thrown in here and there. Over the last couple of years, I've switched an increasing percentage of my portfolio to a swing trade strategy (using both stock and option trading).
My fear of changing to this strategy was ... Tax time.
1) I was afraid of the amount of work/time it would take for me to enter each security transaction (about 40 of them) into my tax software.
2) I was afraid that a lot of swing trading in my non-registered account might flag me as 'trading' vs 'investing'. i.e. gains and losses would be determined to be business income, and not capital. I work a regular 9 to 5 day job and only swing trade on my days off. I would not be very happy if my capital gains were suddenly turned into income for tax purposes. I also didn't want to fill in a T123 form, on the chance that CRA reviewed me and labelled me a 'trader'. Here's the unclear / no simple answer from CRA. Transactions in securities
When I received my 2011 tax slips from Interactive Brokers, I was surprised by the following.
I received two T5008s.
One represented my US stock transactions. One represented my US option transactions. Box 17 'Identification of securities' stated "Various".
These tax slips represented the aggregate totals of all my transactions. Cool. Therefore, my plan is to record two lines of transactions on my tax form, vs. the 40 individual transactions that I thought I would have to enter. The other neat thing that Interactive Brokers did was, the amounts are reported in Canadian dollars using the closing fx rate on the day of each transaction. Very cool. No USD Exchange rate calculations required on my part. I just need to total up my disposition commission costs.
Any comments from the forum on the above notes and these points:
1) I'm surprised that the CRA might allow you to report aggregate totals (vs reporting each transaction individually). I guess if CRA audits me, I'll still have my backing documentation of the actual individual trades that I made.
2) Being labelled as 'trading' vs 'investing' for income tax purposes. I don't believe I've ever seen anyone on this forum mention that they have been labelled as a 'trader' and having their transactions recorded as business income. I'm assuming that this does not occur very often. If it has happened to you, let us know.
My fear of changing to this strategy was ... Tax time.
1) I was afraid of the amount of work/time it would take for me to enter each security transaction (about 40 of them) into my tax software.
2) I was afraid that a lot of swing trading in my non-registered account might flag me as 'trading' vs 'investing'. i.e. gains and losses would be determined to be business income, and not capital. I work a regular 9 to 5 day job and only swing trade on my days off. I would not be very happy if my capital gains were suddenly turned into income for tax purposes. I also didn't want to fill in a T123 form, on the chance that CRA reviewed me and labelled me a 'trader'. Here's the unclear / no simple answer from CRA. Transactions in securities
When I received my 2011 tax slips from Interactive Brokers, I was surprised by the following.
I received two T5008s.
One represented my US stock transactions. One represented my US option transactions. Box 17 'Identification of securities' stated "Various".
These tax slips represented the aggregate totals of all my transactions. Cool. Therefore, my plan is to record two lines of transactions on my tax form, vs. the 40 individual transactions that I thought I would have to enter. The other neat thing that Interactive Brokers did was, the amounts are reported in Canadian dollars using the closing fx rate on the day of each transaction. Very cool. No USD Exchange rate calculations required on my part. I just need to total up my disposition commission costs.
Any comments from the forum on the above notes and these points:
1) I'm surprised that the CRA might allow you to report aggregate totals (vs reporting each transaction individually). I guess if CRA audits me, I'll still have my backing documentation of the actual individual trades that I made.
2) Being labelled as 'trading' vs 'investing' for income tax purposes. I don't believe I've ever seen anyone on this forum mention that they have been labelled as a 'trader' and having their transactions recorded as business income. I'm assuming that this does not occur very often. If it has happened to you, let us know.