# Taxation questions - Trading, Investing, Real estate



## Financial_Bougie (Jul 8, 2016)

Hi All, 

First post here. I wanted to ask several questions related to taxation. I am a Canadian citizen born and raised and living in Ontario. Tax question is related to 2 different topics but all tax related. 

- Day/Swing Trading: Not too urgent as I am still not consistently profitable  .In the US, there is a way with the IRS to claim your expense as a qualified as a trader based on frequent daily trades as a day trader (~5 trades a day). You don't need to incorporate a company, you can claim your related expense especially if you are a frequent trader and are trading daily or full time. Expenses such as computer, internet fees, market feeds, other office expenses, chat room fees, seminars, books etc. Wondering is anyone familiar with the process in Ontario, Canada. 

- Stocks: I am buying stocks TSE + NYSE as investments from my CIBC e-banking platform "investors edge" and was wondering how to deal with this at tax time. Not much activity at the moment however may increase and may consider adding small / microcap / penny stock day trading activity soon. At that point I will consider using a different platform with live data, etc. I currently trade from a LIRA (locked-in retirement acct), but also have a TFSA (tax free acct) set-up as well. 

- Real estate: Have several homes with mortgages as rentals and was also wondering on the above expenses that could be claimed. Expenses such as computer, internet fees, Car and fuel, advertising, etc. One of the houses is in Nova Scotia, others in Ontario. 

Don't need exact answers for everything, hoping to generate some good discussion on the above. 

Thanks :thumbsup:


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## Eclectic12 (Oct 20, 2010)

It doesn't answer the office expenses question but the factors to determine if the trades need to be reported as income instead of the less taxed capital gains makes no mention of profitability.
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm

As for "how to deal with stock taxes", the first part is that the USD stocks will have to be converted from USD to CAD as the Canadian tax return is in CAD only. The conversion may give rise to a gain when the stock was sold at a loss.

This may not matter as a LIRA, like the RRSP is not taxed on sell transactions/investment income. The withdrawal is added to one's yearly income. So where the trading is all in the LIRA, there is no tax implication to selling.

For the TFSA, there is no Canadian tax but should your US investments pay dividends/income - the US does not recognise the TFSA as a retirement account (where the RRSP is). So the US will take the 15% dividends/income withholding tax (it could be higher for some US investments). The RRSP is exempt.

In a taxable account, the US will take the 15% but one can claim the foreign tax credit (FTC) to reduce or eliminate the US taxation. Canada will take their taxes as well.
http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/
http://canadiancouchpotato.com/2012/09/20/foreign-withholding-tax-which-fund-goes-where/


It is probably a good idea to become familiar with the tax documentation/requirements before investing in a taxable account. As I have discovered to my regret in the past, it is much easier to learn/adjust one's bookkeeping to collect the needed info as it happens. Trying to figure it out years after the fact, with limited info is at best a big time drain and at worst is painful.


For the RE expenses ...
http://www.taxtips.ca/personaltax/propertyrental/rentalexpenses.htm
http://www.cra-arc.gc.ca/E/pub/tg/t4036/README.html


Keep in mind that when the rental properties are sold, one will have to pay capital gains taxes on the rise in value of the rental property. This may mean a high income year, when the property is sold.


Cheers


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## nobleea (Oct 11, 2013)

You can claim all those expenses you've listed already, but you'll have to declare your profits as income rather than capital gains. CRA may make this declaration for you if they see lots of trading and capital gains (consistently). The vast majority of small time traders lose money, consistently. The fact that you're not good at this means you'll likely join the club. Day trading in a LIRA with penny stocks is probably the worst idea around. You're going to lose your shirt and not even be able to claim the capital loss either.


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## Spudd (Oct 11, 2011)

nobleea said:


> You can claim all those expenses you've listed already, but you'll have to declare your profits as income rather than capital gains. CRA may make this declaration for you if they see lots of trading and capital gains (consistently). The vast majority of small time traders lose money, consistently. The fact that you're not good at this means you'll likely join the club. Day trading in a LIRA with penny stocks is probably the worst idea around. You're going to lose your shirt and not even be able to claim the capital loss either.


Are you sure he can claim those expenses if he's doing the trading in his LIRA? It seems to me, that would only apply to taxable accounts.


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## nobleea (Oct 11, 2013)

Spudd said:


> Are you sure he can claim those expenses if he's doing the trading in his LIRA? It seems to me, that would only apply to taxable accounts.


You are correct, only in taxable accounts (no LIRA, RRSP, TFSA). His first question didn't mention anything about type of account.


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## Financial_Bougie (Jul 8, 2016)

nobleea said:


> You can claim all those expenses you've listed already, but you'll have to declare your profits as income rather than capital gains. CRA may make this declaration for you if they see lots of trading and capital gains (consistently). The vast majority of small time traders lose money, consistently. The fact that you're not good at this means you'll likely join the club. Day trading in a LIRA with penny stocks is probably the worst idea around. You're going to lose your shirt and not even be able to claim the capital loss either.


Hi there. I know, 95 % loose .. I am aiming to be in the 5% club  

I should clarify, in LIRA acct, it is investing .. currently in 3 stock positions which is a buy and hold strategy for 3, 6 12 months or beyond. 
Commodity or stocks day trader is totally separate from that, with speculation (can afford to loose) money. Small accts. 

Cheers


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## Eclectic12 (Oct 20, 2010)

Question is ... what account is the day trading happening in?

If it is the TFSA, here is a link that too many wins can attract CRA's attention.
http://business.financialpost.com/p...r-tfsa-being-targetted-by-cra?__lsa=205e-b309

If it is a taxable account, then the "capital gains versus income" for the tax reporting comes into play.


Cheers


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## Spudd (Oct 11, 2011)

Financial_Bougie said:


> Hi there. I know, 95 % loose .. I am aiming to be in the 5% club
> 
> I should clarify, in LIRA acct, it is investing .. currently in 3 stock positions which is a buy and hold strategy for 3, 6 12 months or beyond.
> Commodity or stocks day trader is totally separate from that, with speculation (can afford to loose) money. Small accts.
> ...


Just FYI, it's lose, not loose.


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## janus10 (Nov 7, 2013)

And of course CRA would deny someone from claiming capital losses in their TFSA. But if you make too much?

Perhaps why the money sense annual report on big TFSA winners doesn't encourage all of the big winners to come forward. They probably fear of drawing unwanted attention.

Is there some stipulation that trustees must report balances over a certain ceiling to the CRA?


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## humble_pie (Jun 7, 2009)

Spudd said:


> Just FYI, it's lose, not loose.




lose/loose has become a universal spelling eyesore.

another frequent mistake is it's/its. One is a conjunction of the verb *to be,* representing the words "it is." The other is a possessive denoting ownership. 

it's a shame how the internet is unable to look after its own spelling.

haroldCrump had the best joke about chronic misspellings that are now so widespread they are moving into newspaper-correct style sheets, although they haven't yet reached the most venerable among dictionaries.

a new arrivee knocks at the pearly gate

"who's there" goes St Peter

"it is I," says a voice from outside the gate

"dear God, we have another English major," says St Peter


.


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## Market Lost (Jul 27, 2016)

First off, day trading and commodities? I'd say you have better luck at the casino, but best of luck with it. You should take a look at form T2125, so you get an idea of what you are up against. Stick to basics when it comes to expenses, and make sure they are reasonable. You can basically expense anything not statute barred, but they have to be justified. The big thing to remember is to be 100% honest when you declare your income. Expenses can often be grey, but if you don't declare your income then you will be up the creek without a paddle. 

As for your real estate, make sure you don't double claim your office expense. It's a good idea to prorate your expenses based on the amount of time spent on each. As for your car expenses, the rule is you can only charge what you spend on your business, and it has to be reasonable. Make sure you always keep a detailed vehicle log, and don't, repeat, don't try to get with things. I've seen so many people think that they can get away with murder just because they write done stupid things like "picking up stamps" when they go to the grocery store. CRA has a long list of guidelines they follow, and if you get audited, you'll learn quickly that they don't just take your word for things. 

My best advice would be find a good accountant, a small independent one, not a big firm. You should at least do this for the first year to avoid issues because it's obvious that you don't have much experience with tax. Ask questions about what documentation you need, and what is reasonable to expense. This type of return won't be cheap, I wouldn't be surprised if it was between $500 to $1,000, so get a few quotes, and references.


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