# What's the best place to get TFSA for a day-trader?



## healey (Jun 1, 2009)

I currently have about 2.5K of my 5K allotment in a Questrade TFSA (WebTrader Beta with streaming level I TSE quotes). I need to know if there is anything better for my other 2.5K. IB (Interactive Brokers) would be almost perfect for this, but they don't offer TFSA's. Argh!

I need:
-cheap commissions
-Advanced order types. Such as trailing stops, stop-losses @ market, stop-losses @ limit, market-on-close _that can be run in parallel to a sell order_ (Questrade cannot run them in parallel for some reason...pathetic!)
-Good alert system. Ex. I want a sound to play on my computer after an order is filled. So, if I'm in my apartment doing something else, I'll know to come down to the PC.


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## balexis (Apr 4, 2009)

Edit: mixed up TFSA with something else, sorry.


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## FrugalTrader (Oct 13, 2008)

balexis said:


> Just curious, why are you looking for a TFSA for daytrading? Do you know the CRA will tax you on those gains if the TFSA is used this way?


balexis, do you have documention to support your statement?

healey, for a low balance, I believe Questrade is your best bet. Next lowest is perhaps itrade with $19.99/trade.


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## healey (Jun 1, 2009)

*balexis:* Are you 100% sure on that? I've _never_ seen that mentioned anywhere.

*ft:* Thx, I'm gonna take a look at that. I see you reviewed it on your discount broker review page.
The the 19.99/trade is a _big_ drawback. But, do you know if they allow advanced order types & alerts?


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## Mockingbird (Apr 29, 2009)

balexis said:


> Do you know the CRA will tax you on those gains if the TFSA is used this way?


Could you please provide a link for this claim?


I believe Tradefreedom also provides TFSA Account with some basic order types. Regular $9.95/trade and $6.99 for the active traders. Unfortunately, there aren’t many competitive choices of brokers here in Canada. Agree with FT, stick with Questrade for low balance.


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## healey (Jun 1, 2009)

*Mockingbird*: Does TradeFreedom charge you removing liquidity fees? I couldn't see anything mentioned on that on their website.


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## balexis (Apr 4, 2009)

Erm so sorry to spread such misinformation, I completly mixed up TFSA with something else.


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## JF. (Apr 3, 2009)

I currently in the process of opening a TFSA account with TradeFreedom. Hope all goes well.


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## robert99a (May 23, 2009)

No one ever suggests Credential Direct. Is it because they're terrible or because no one has any experience with them? It's $19 a trade. With 25 trades per quarter, this goes down to $10 a trade. For a day trader, 25 trades per quarter should be easy.

I have never tried them so I don't know if they're good or not.


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## healey (Jun 1, 2009)

*Robert99:* That's a very good point! I actually have a Credential Account that I opened a few years ago. They're pretty good (ie. they give you free level 2 data) except for the high fees. 

Their active trader of 9.95 a trade is very enticing. However, I just called them to get some more info on it...you have to go thru one quarter (3 months) making at least 25 trades at the 19.99+up rate to get that rate. But you don't get refunded for those 3 months which sucks! 

What's interesting is that if I could tap into their active trader rate, it would be even cheaper for me than Questrade. Because Questrade charges 0.001/share for orders that get executed at first few mins at the market open. I get dinged with that a bunch. 

QT also charges for removing liquidity (0.001/share). Credential does not at all! However, I rarely do removing liq. trades with QT, so that wouldn't benefit me. So, for all you active traders out there, Credential might be cheaper (after going thru the painful 3 month process)!

*JF*: I'm just checking out TradeFreedom's fees (http://www.tradefreedom.com/en/tradingprodfees/feescommissions.asp). Not bad. $9.95 flat (plus ECN fees if applicable...I guess that would be for if you are removing liquidity). I'm gonna check into them a bit more.


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## Mockingbird (Apr 29, 2009)

healey said:


> *Mockingbird*: Does TradeFreedom charge you removing liquidity fees? I couldn't see anything mentioned on that on their website.


For US stocks, $9.95 flat if you trade thru a managed route. Add on ECN fees if you use direct access method. (between $0.003-$0.005/sh)

For CAD stocks, $9.95+exchange fee. $0.036/sh for TSX and $0.0004/sh for TSX Venture.


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## j8chan (Apr 5, 2009)

"Just curious, why are you looking for a TFSA for daytrading? Do you know the CRA will tax you on those gains if the TFSA is used this way?"

Is there a link i can find this information, i looked on the CRA website. And what is considered daytrading by questrade?


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## healey (Jun 1, 2009)

j8chan: it's not true. If you look, you'll see that balexis retracted his/her statement.


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## j8chan (Apr 5, 2009)

thanks healey.


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## Robillard (Apr 11, 2009)

I can't find a specific reference on the CRA's website, but I believe that income from short term trading in securities, i.e., day trading, is treated as active business income, and not capital gains. There is a technical interpretation on the issue from 1984 as it pertains to section 39 of the income tax act at this url: http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html. See paragraphs 17 & 18:

17. The presumption that gains from security transactions are on income account will also be taken by the Department in any situation where it is apparent that the taxpayer has used special information not available to the public to realize a quick profit.

18. The gain or loss on the "short sale" of shares is considered to be on income account.

Now, the bulletin that announced the TFSA program at http://www.cra-arc.gc.ca/E/pub/tg/rc4466/rc4466-08e.pdf says that income earned in the account is tax free. Notice how in the brackets that investment income and capital gains are mentioned explicitly. Active business income, even if it is derived from trading securities, is not investment income. I do not have a reference for this, but it was not the intention of the government for the TFSA to allow Canadians to earn active business income tax free. 

I think the general rule is, a gain earned from buying and selling a security over a period that is shorter than one month, is treated as income and not as a gain on capital. Thus, the gain is fully taxable, and not 50% taxable as a capital gain normally is. Likewise, a loss earned under the same circumstances is not treated as a capital loss. Such a loss cannot be treated as a capital loss and set off against capital gains. 

In short, trading income is active business income and you have to pay tax on it, even if it was done in your TFSA. If you are a swing trader though, and hold positions for a month or longer, it is possible that your income would be treated as capital gains, and in the TFSA it would not be taxable. 

Additionally, there is a reference on the taxtips website:
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm


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## healey (Jun 1, 2009)

robillard: #18 is clear that shorting is "business income".
However, #17 propably doesn't apply to most day-traders. Why? Well #17 stipulates that there must be the use of "information not available to the public."

Regarding day-trading being taxable in the TFSA. It's not at the moment. There's been no announcement of such by the crooks in office. But, I think it's possible in the future...the politicians have an incentive to minimize what they call "tax leakage" (aka just letting keep their own money!)


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## Robillard (Apr 11, 2009)

Hmm... I should have also drawn attention to paragraph 10 and 11 of IT-479; see subparagraphs 11(a) and 11(b) in particular:

10. Where the whole course of conduct indicates that

(a) in security transactions the taxpayer is disposing of securities in a way capable of producing gains and with that object in view, and

(b) the transactions are of the same kind and carried on in the same way as those of a trader or dealer in securities. the proceeds of sale will normally be considered to be income from a business and, therefore, on income account.

11. Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

(a) frequency of transactions - a history of extensive buying and selling of securities or of a quick turnover of properties,

(b) period of ownership - securities are usually owned only for a short period of time,

(c) knowledge of securities markets - the taxpayer has some knowledge of or experience in the securities markets,

(d) security transactions form a part of a taxpayer's ordinary business,

(e) time spent - a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

(f) financing - security purchases are financed primarily on margin or by some other form of debt,

(g) advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

(h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.


Of course, Finance is deliberately non-specific in their choice of language in order to give the CRA maximum leeway. Also note that the general anti-avoidance rule in the act may apply if other more specific provisions of the in the Income Tax Act do not. People who are using the TFSA for day trading are risking having their tax returns flagged by the CRA for assessment and audit. Brokers are required to share information on client securities transactions, in RRSPs and TFSAs in particular, with the CRA.


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## healey (Jun 1, 2009)

Robillard: thx for that additional info on it-479. Very useful. 

Re: TFSA day-traders, I disagree with you on this. I would be very surprised if the bureaucrats started auditing TFSA day-traders .


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## Kinny (Apr 3, 2009)

Anyone care to mention any good day-trading stocks on the TSX?


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## OhGreatGuru (May 24, 2009)

It would not surprise me if the Dept. of Finance decides that day-trading is an abuse of the intended purpose of TFSAs. They have already announced changes to crack down on other forms of abuse. See http://www.theglobeandmail.com/repo...-of-tax-free-savings-accounts/article1329844/


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## Berubeland (Sep 6, 2009)

I think they thought that the TFSA would be used mostly for savings accounts. 

I don't think if you daytrade out of your account they will like that long term.

Depends how successful you are I guess. I guess you could invest the initial $5000 and grow it. How much that is the question?

My mom bought TECK with her $5000 I have no idea how much it is worth now but I think she paid $7-8 for it. 

What is the biggest people have grown their TFSA daytrading?


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## dilbert789 (Apr 20, 2010)

Hate to bring a thread back from the dead, but... 

Can anyone verify that day trading (buying and selling within a day/couple days) of the same stock is NOT taxed when done within a TFSA? 

Example
Buy 100 shares @ $10 ($1000) at 10am 
sell 100 shares @ $12 ($1200) at 3pm same day

$200 - $10($5buy, $5sell commissions) profit of $190...

Thanks.


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## humble_pie (Jun 7, 2009)

this is an interesting point. My first response would be of course not, no capital gain in a tfsa would be taxed. In the same way, capital gains from day-trading in a non-registered account would be taxed exactly the same as capital gains from assets sold after a holding period of 30 years. Both would be taxed @ 50%.

but it then occurred to me to wonder how the CRA looks at capital gains within a tfsa owned by a market professional. Pros pay capital gains @ 100%. It would seem only fair to permit them a true tfsa, with tax-free capital gains. Furthermore i have never heard of any special treatment for professional tfsas.

so my final response would be no capital gains taxation in a tfsa unless you are a market professional, in which case it would probably be a good idea to confirm more profoundly than on a message board.


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## hax3 (Apr 22, 2010)

Does anyone know if I need to register a business in order to claim capital loss as income loss (assuming i meet the criteria to do so)? Can I just do it without doing the whole registration and getting a business number, etc...

Thanks in advance.


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## hax3 (Apr 22, 2010)

Not sure what happened to a reply I tried to post yesterday so here it goes..

Based on some of the factors CRA noted (e.g. frequency of trading, length of owndership, nature of trade, short positions, etc), I believe I am able to claim my capital loss as income loss. Does anyone know I have to setup and register a business (sole proprietor) and get a business number in order to be able to claim this as an income loss? 

Thanks for your time and help..


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## hax3 (Apr 22, 2010)

anyway I'm reading Tim Cestnick's 101 Tax secrets for canadians (2010) and under the TFSA section it states:

"Shelter option or shorting strategies. If you get involved in certain options strategies, or in short-selling, the profits you make, if any, can be taxed as regular income. If this is the case, consider whether to undertake these strategies inside a TFSA. The advantage is that income will be sheltered from tax. The disadvantage may be that you won't be able to claim a deduction for any expenses related to earning that income..."

So based on this - looks like you can do day trading inside TFSA...


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## balexis (Apr 4, 2009)

I re-read on the topic.

It appears the CRA might interpret income from day trading as business revenues and not personal income. Such revenues are not allowed inside TFSA/RRSP accounts. See interpretation bulletin IT-479R. Here is a relevant excerpt:

11. Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

(a) frequency of transactions - a history of extensive buying and selling of securities or of a quick turnover of properties,

(b) period of ownership - securities are usually owned only for a short period of time,

(c) knowledge of securities markets - the taxpayer has some knowledge of or experience in the securities markets,

(d) security transactions form a part of a taxpayer's ordinary business,

(e) time spent - a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

(f) financing - security purchases are financed primarily on margin or by some other form of debt,

(g) advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

(h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.

12. Although none of the individual factors in 11 above may be sufficient to characterize the activities of a taxpayer as a business, the combination of a number of those factors may well be sufficient for that purpose. Further, subsection 248(1) defines the term "business" to include "an adventure or concern in the nature of trade" and the courts have held that "an adventure or concern in the nature of trade" can include an isolated transaction in shares where the "course of conduct" and "intention" clearly indicate it to be such.

An excellent article is available here (in french only sorry) that describes the risks of daytrading inside a TFSA. Its not a black-or-white situation as usual.

http://www.celi.ca/daytrading-dans-le-celi-partie-2/


Thoughts on this one?


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## DavidJD (Sep 27, 2009)

Hmm then if you are considered 'in business' or a professional trader AND you lose money can you claim losses? Surely if you can be taxed differently then you should be allowed to claim losses against?

People - there are many, many highly paid policy wonks who are trying to think of all these scenarios and government responses to them. As we saw with the closure of the loopholes back in fall 2009, this investment instrument will be tweaked as needed.

If you are a small player doing all the day trading you can and despite the fees and the realities of the market, raking in a crazy amount of money every month - great. If too many of us do, than the gov will respond and restrict the amount that this can be done - they will give notice and the rules will change for everybody. These accounts are with us for good - just not as they were presented in the beginning of 2009. By 2011 I am sure they will have been altered even more.


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## MoneyGal (Apr 24, 2009)

Coming back to this old thread. 

The issues w/r/t whether income from day-trading is taxed as capital gains or as ordinary income is not specific to day trading. The same issues arise with house flipping. CRA will never say, for example, "you can flip 4 houses and only pay capital gains tax on the gain (without having the ability to deduct any costs or losses) - it's that 5th house that will put you over the dividing line as to how your income from the gains is taxed." 

Instead, they apply a multi-factor test. Tax preparers often talk about the "smell test" as a way to encompass that whole set of factors that CRA may use in determining how income is taxed. 

But in general: if you are making your living doing this thing (and CRA may say you are "making your living" based on the amount of time you put into the activity, the degree of expertise you bring to bear, and/or the amount of money you make), you are at risk of having the income taxed as ordinary income, not capital gains.

On the plus side, once your income is characterized as business income, you can deduct both costs and losses. 

None of what I just wrote may apply to TFSAs though. I personally expect the rules around TFSAs to change over the coming years - the potential for tax leakage is just too great.


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## investor23 (Dec 6, 2010)

*Option Xpress?*

Hi,

Does anyone think OptionXpress is also a good place to open TFSA, instead of Questrade? I noticed their fees are lower. Please comment and guide. 
Thanks!


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## screwjack (Dec 14, 2011)

My first post here. I came into this thread by chance when I was googling something about tax. I can't help posting a reply when I saw there is so much nonsense about TFSA in this thread.

First off, no gain in TFSA is taxable (foreign dividend withholding tax aside). That's the whole point of a TFSA. You can argue daytrading in a TFSA is against the original intention of it. But as far as any average person is concerned, that is not his problem.

Second, there is no way you can daytrade with a TFSA. You just physically can't. As a TFSA account can only be a opened as a cash account, all trades in a TFSA have to follow T+3 settlements (T+1 for options). If your broker allows you to daytrade in your TFSA, your broker is doing it at its own risk.

Even outside a TSFA, CRA doesn't care about your holding period when it comes to taxing your capital gains. They only tax your net gain on an annual basis. Regarding the point made by MoneyGal, any daytrader raking in enough profits to be probed by the CRA would probably have left Canada. (Think about it, Canada only tax residents, so why would any traders who can earn enough from tradings want to base in Canada and have their pockets emptied by the CRA.)


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## Eclectic12 (Oct 20, 2010)

Berubeland said:


> I think they thought that the TFSA would be used mostly for savings accounts.
> 
> I don't think if you daytrade out of your account they will like that long term.
> 
> ...


I agree that the success rate will be a key concern for the gov't. This is also why I don't think there is much of an issue - I have yet to meet anyone who has been able to profitably day trade for more than a couple of months.

However, as others have posted, most brokers are using T+3 for trades so the shortest trade period is likely around four days.


Putting aside the day or week trading, for TFSA growth - some have posted on CMF that they used mining stocks to get from $10K to $80K or better. I take it with a grain of salt as most (myself included) like to talk about their success stories, not any failures. *grin*

The last I checked, for TFSA contribution room of $15K - I was at about $19K. I cashed out a combination of CG and dividends to use up my mortgage pre-payment privileges. 

If the market stays down, I should be able to re-contribute in time to pick up some bargains. In the meantime, what I left in my two TFSAs are contributing interest, dividends or distributions at 1.5%, 7%, 8% and 11.5%.


Cheers


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## CITY_LOVER (Dec 21, 2011)

Hi all,

I have a scenario that I'm really curious about regarding the trading of a US-based company's stock in my TFSA account (I'm a Canadian citizen living in Toronto).

I have become very interested in buying and selling only one company's stock in an attempt to gain 1% or better with each trade. The result of this is that I'm a frequent trader of a single company's shares (that trade on the NYSE). I hold the stock anywhere from as little as one day to perhaps seven business days. 

My idea/attempt here is to lock in as many 1%+ gains as I can (instead of waiting for big jumps which are few and far between), so that over a course of say one year, I can hopefully see overall gains of 30%+ from the amount I initially start out with. Since I follow this company and its industry, I have a better understanding of what may happen than merely hoping that the 50-50 chance of the stock going up or down will somehow allow me to lock smart gains (I'm not that naive). 

I'm curious about the tax implications I may have with this strategy, if any. I'm at arm's length with this company (although I used to work for them upto Feb 2011 and only started my trading in Oct 2011) and definitely own less than 10% of the total outstanding shares of the company. 

What if I was lucky and was able to make tens of thousands of dollars per year by this method - to the point that it eventually would exceed my normal salary? This trading is done on the 'side' (it's not my normal business as I'm a salaried accounting professional).

Would the CRA consider the gains of a US traded company's stocks in a TFSA account of a Canadian citizen at arm's length (with frequent trading and holds for very short durations) capital gains or normal/business income? (The tax rates for me would be 23% and 46% respectively.) Or would I be able to lock in the gains completely tax free? 

This is being asked on the CRA's rules for TFSA as of today! 

Thanks in advance for assistance.


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