# Screwed up tax returns



## oc614 (Apr 26, 2015)

I moved to Canada 7 years ago and have used a supposed cross-border "expert" accountant to do all of my US and Canada tax returns. I have a standard tax return, two T4s, no property or business. Nothing clever but I do some day trading on the side.

Well, after years of my accountant lumping everything into Schedule 3 as capital gains, it turns out that the CRA views all short sale gains and losses as investment income. (Taxed at 100% vs 50% of capital gains.) On this (and only this), the CRA is very explicit. I don't think the CRA has ever said an additional word regarding short sales. We've looked high and low for any additional comment on short sales and there's NOTHING.

Regardless, for a T5008 that includes both longs and shorts, the trades should be split out into separate T5008 entries, one filed as capital gains, one filed as investment income. I have spent an enormous amount of time researching this little known issue and I am certain it is true.

This hasn't been done for the past 5 years of my returns. So I realize that I've not been well served by my accountant. He shortcutted my T5008 and never gave me a heads up on the potential pitfalls, sort of what I thought I was paying for.

Of course, responsibility falls on me. So I'm now doing my return myself and it's really not that hard. I should have been doing it myself this whole time. "Luckily" for me, my trading results are bad so I don't think there's a year where I failed to pay appropriate taxes. The worst that might have happened was realizing excessive capital gain losses.

Here's my concern: Do I continue lumping everything into capital gains as before which would be consistent with prior years (and hasn't attracted attention before) or do I file correctly which would be a change in the nature of my return and potentially flag it as a possible candidate for a reassessment or audit? Again, this year my results are negative so neither approach changes my tax due so I'm not really hiding anything. (And I'm not the type to try to hide income. I'm more than happy to pay my taxes.)

I guess a third option is to file as before and redo all 6 years of my returns using the Voluntary Disclosure Program. I don't actually think it would result in $ due.


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## Eclectic12 (Oct 20, 2010)

You might want to look into the election first ...



> The gain or loss on the short sale of shares is considered to be an income gain or loss, *unless an election has been made under s. 39(4) to treat them as capital transactions * ... A taxpayer can elect under s. 39(4) of the Income Tax Act to have their transactions in Canadian securities to be treated as capital transactions.
> 
> The election is made by filing form T123, and applies for Quebec taxation purposes also (as per Quebec Taxation Act s. 250.1).


http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm


Cheers


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## oc614 (Apr 26, 2015)

Eclectic12 said:


> You might want to look into the election first ...
> 
> 
> http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm
> ...


Not valid for US securities.


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## Eclectic12 (Oct 20, 2010)

^^^

Interesting ... you learn something new every day ... :biggrin:


Cheers


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