# Proffesional Trader CRA Definition



## ions (Mar 23, 2012)

Hello Canadian Money Forum,

I recently started doing some trading in an Unregistered Account in my BMO Investorline. I have been only investing / trading in my TFSA and RRSP until this point which are both maxed out.

I learned that Capital Gains in your Unregistered Account are taxed at 50% at your Marginal Tax Rate. However, if you are designated as a professional trader Capital Gains are taxed at 100% in an Unregistered account. I also heard (not certain if this is true) that if you are designated as a professional trader even your TFSA could be subject to taxation.

My question is the following. I do not want to be designated as a professional trader by the CRA. I am by no means a professional trader as I am still learning and I own a small software company which is where my income comes. Can I proceed and trade in my Unregistered account without any concern? Can I day Trade in my Unregistered Account?

Thank you for your response.


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## Fain87 (Jan 20, 2018)

ions said:


> Hello Canadian Money Forum,
> 
> I recently started doing some trading in an Unregistered Account in my BMO Investorline. I have been only investing / trading in my TFSA and RRSP until this point which are both maxed out.
> 
> ...


Yes you can proceed. . . Although if you into Algo and Quantitative trading, I'd give caution to this. 

I've seen CRA take issue with some client TFSA accounts as well.


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## ions (Mar 23, 2012)

Hi Fain87,

Thanks for your response.

I will not be using any algorithms. Just human decision making. What is the definition of a professional trader? (More than 80% of income comes from trading?)

Also I want to confirm that in my situation there is no cause for the CRA to touch my TFSA? My TFSA is more important to me than my UnRegistered Account. I will be using my Unregistered Account for practicing and learning to trade.

Thank you


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## gardner (Feb 13, 2014)

ions said:


> cause for the CRA to touch my TFSA?


If you google around a bit, you will see that this is a bit of a grey area, and bone of contention for folks looking for clarity from the CRA. The best I have found is that the CRA uses a blend of criteria to determine if your TFSA usage is acceptable, or constitutes "income earning". Some combination of,

if you made "a lot" of money in your TFSA, for some not fully defined value of "a lot";
invest in exotic instruments, derivatives rather than conventional equity or debt;
made "a lot" of trades or hold investments for short periods of time;
are otherwise in the business of investing or trading, maybe a broker or day trader.

The CRA does go after people and has a successful record when they do.


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## Fain87 (Jan 20, 2018)

ions said:


> Hi Fain87,
> 
> Thanks for your response.
> 
> ...


Canada is a principals based system as opposed to a rules based. . . Professional trader designation is not cut and dry. I am registered/licensed in every province, carry the title Trader at my work and still my personal trades are capital gains and not income.


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## james4beach (Nov 15, 2012)

Might be a related question: does anyone know what kind of criteria might affect the trading designation/taxability of an RRSP?

In one of my RRSP accounts, I do some active trading (about 100 trades per year) with positions held 1-5 days typically. The instruments I use are US cash and fixed income ETFs, not leveraged/inverse/exotic. My understanding is that 100 trades per year is not very active, and I don't work in the financial industry and have no professional designations. Any thoughts on if this could be trouble?


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## Numbersman61 (Jan 26, 2015)

As others have posted, this a grey area. Some of the factors include frequency of trading, type of instruments (derivatives, short selling etc), time spent on trading activities. What you want to establish is that you are buying for investment purposes and not for trading purposes. I suggest you limit your TFSA activities by purchasing investments for long term hold - not short term gain.


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## ions (Mar 23, 2012)

Thank you for everyone's responses.


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## ions (Mar 23, 2012)

I have a follow up question:

I am assuming I cannot deduct Trading expenses ($9.95 / trade) from my TFSA and RRSP but can I deduct trading expenses from my Unregistered trading account on my Taxes?

Thank you.


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## Spudd (Oct 11, 2011)

ions said:


> I have a follow up question:
> 
> I am assuming I cannot deduct Trading expenses ($9.95 / trade) from my TFSA and RRSP but can I deduct trading expenses from my Unregistered trading account on my Taxes?
> 
> Thank you.


If you want to be a professional investor then yes you can deduct trading expenses. If you want to be viewed as a regular investor (i.e. 50% capital gains tax) then you cannot.


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## Numbersman61 (Jan 26, 2015)

ions said:


> I have a follow up question:
> 
> I am assuming I cannot deduct Trading expenses ($9.95 / trade) from my TFSA and RRSP but can I deduct trading expenses from my Unregistered trading account on my Taxes?
> 
> Thank you.


Unregistered Account. If you are not a trader, the cost of the trade ($9.95) on a purchase is added to the cost of the stock. When the stock is sold, the cost of the trade is deducted from the sales proceeds.


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## OnlyMyOpinion (Sep 1, 2013)

Spudd said:


> ... If you want to be viewed as a regular investor (i.e. 50% capital gains tax) then you cannot.


Buy costs do form part of the the ACB though and then sell costs are subtracted from the gain/loss upon sale and schedule 3 reporting.


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## Spudd (Oct 11, 2011)

OnlyMyOpinion said:


> Buy costs do form part of the the ACB though and then sell costs are subtracted from the gain/loss upon sale and schedule 3 reporting.


That's true, good point.


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## ions (Mar 23, 2012)

Thank you everyone.


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## Eclectic12 (Oct 20, 2010)

ions said:


> ... My question is the following. I do not want to be designated as a professional trader by the CRA.
> I am by no means a professional trader as I am still learning and I own a small software company which is where my income comes.
> 
> Can I proceed and trade in my Unregistered account without any concern? Can I day Trade in my Unregistered Account?


It sounds like it ... but there is not a lot of detail.
If you check out this article, the factors CRA typically looks at are listed.
https://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm


Keep in mind that should one have to report the gains as business income - there is a bit of a silver lining. Where one reports capital gains, capital losses can only be used to offset capital gains. Where one reports business income, losses can be used against all forms of income (i.e. is not limited to capital gains income).


Here are some articles on the frequent trading issue being applied to a TFSA.
https://www.moneysense.ca/save/investing/tfsa/taxman-after-your-tfsa-unlikely/
https://business.financialpost.com/...-stocks-the-cra-may-see-it-as-business-income


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Might be a related question: does anyone know what kind of criteria might affect the trading designation/taxability of an RRSP?
> 
> In one of my RRSP accounts, I do some active trading (about 100 trades per year) with positions held 1-5 days typically. The instruments I use are US cash and fixed income ETFs, not leveraged/inverse/exotic. My understanding is that 100 trades per year is not very active, and I don't work in the financial industry and have no professional designations. Any thoughts on if this could be trouble?


Not sure ... but since a similar criteria is reported as being used for big TFSAs, look at the list from the first article in post #15. If you only fit a few of the list, I would expect you would be okay.


Cheers


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## OhGreatGuru (May 24, 2009)

Are you confusing the terms "professional trader" with "being in the business of trading" (rather than investing)?


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## ions (Mar 23, 2012)

Thank you for the articles Eclectic12.


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