# T5008 - Interactive Brokers - 1) Aggregate totals 2) 'trading' vs 'investing' T123



## avrex (Nov 14, 2010)

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.


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## Homerhomer (Oct 18, 2010)

There is no requirement of listing each capital gains transaction, reporting the summary is just fine.

With 40 transactions and regular job you have nothing to worry about ;-)


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## humble_pie (Jun 7, 2009)

Homerhomer said:


> There is no requirement of listing each capital gains transaction, reporting the summary is just fine.


gosh. This is awful. Are you 2 guys ever wrong. And you're not the only ones believing this stuff about a broker's trading summary. Nonsense like this is becoming an urban legend.

the broker's trading summary is *not* the capital gains report that should be sent to the tax authorities. It's just a summary of buys & sells for the year.

what the tax authorities want is a list of all securities sold or disposed of during the year. They want to know the proceeds of each disposition, the adjusted cost base of the securities involved, & the resulting gains or losses.

often - in fact extremely often - the acquisition of a security occurred in prior years, therefore it doesn't even show up in this year's trading summary.

conversely, all securities bought in 2011 - or in 2012 - or in any taxation year - are not to be taxed as capital gains or losses until they shall eventually be sold. It is true that the cost of acquisition should be entered into the investor's internal accounting system. However, it does not get submitted to the tax authorities until, eventually, the security is sold.

(aside to avrex) 40 trades a year is nothing. The tax authorities will never even notice. IB has clients who are doing 300 trades per day. Yes, per day. The foregoing is not an error. However, you should report each sale & its acquisition cost as a separate transaction.

i have a friend who is terrified about calculating capital gains & losses. She therefore makes sure to buy & sell everything within one calendar year. She also never does partial or swing trades - as in buy 500 shares, sell 300, buy 800, sell 500, etc - because she can't do those calculations either. In other words, if she buys 500 shares of XYZ in january, she knows she has to sell those 500 shares by christmas.

for the rare investor who behaves like this, a broker's annual trading summary could be used for the capital gains tax calculation. It is, of course, a totally cuckoo way to invest.


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## Toronto.gal (Jan 8, 2010)

humble_pie said:


> i have a friend who is terrified about calculating capital gains & losses. She therefore makes sure to buy & sell everything within one calendar year. She also never does partial or swing trades - as in buy 500 shares, sell 300, buy 800, sell 500, etc - because she can't do those calculations either. In other words, if she buys 500 shares of XYZ in january, she knows she has to sell those 500 shares by christmas.


Lol, I probably felt like that once upon a time too! But seriously, she's probably confused & that's why she's 'terrified'. You have 7.5 months to work on her [help her] so that she does not sell-off all come Dec.2012. :biggrin:


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## Homerhomer (Oct 18, 2010)

humble_pie said:


> gosh. This is awful. Are you 2 guys ever wrong. And you're not the only ones believing this stuff about a broker's trading summary. Nonsense like this is becoming an urban legend.
> 
> .


The problem here is not me being wrong but you not understanding what I said.

I didn't say to use broker trading summary, I said summary and since schedule 3 on the tax return is for capital gains and not for trading, it obviously means capital gains summary and not trading summary, and it has to be prepared properly regardless if it's done by the individual taxpayer or the broker, at the end it's the taxpayer's responsibility to report it properly.

I clearly said that there is no need to report each *capital gain* individually, and the summary is fine, I never mentioned trading summary sent from the broker, it's your misunderstanding that lead you to believe I said anything about this.

Let me just say that I am doing best to stay polite in my reply since yours deserve more direct, humble pie style of response if any.


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## humble_pie (Jun 7, 2009)

actually i don't find you polite at all. I am sorry to say that i find you rude, cranky & wrong.

what you did in your previous post was take another member's account of the trading summaries which he clearly said he had received from his broker & you clearly advised him to report only the total figures in such summary. Nothing could be more mistaken.

IB does not provide true capital gains/losses reports. No discount broker provides true capital gains/losses reports. Just one compelling reason is that no broker can know anything about trading in the same security that a client may carry out in other accounts, including trust accounts, at other financial institutions.

each investor is supposed to provide the tax authorities with a statement of gains & losses realized upon the disposition of each & every security throughout a taxation year. There is to be no bunching of securities under a summary total figure, as you mistakenly advise upthread.

unfortunately an urban legend has developed that brokers' trading summaries - which are reports of buys & sells throughout a calendar year - are the true capital gains/loss statements that are to be submitted with an income tax return.

even more unfortunately, some poorly-trained discount brokers' representatives have been infected with this false notion & they are wrongfully advising some clients to do this.

when the false-reporting epidemic reaches crisis proportions, the revenue authorities might stop brokers from issuing trading summaries. Certainly they were able to stop the swapping of securities in TFSAs in 2009, within mere weeks of the first brokers' reporting to them the abuse that certain clients were perpetrating.

or the revenue authorities might force audits of all capital gains statements. In an extreme scenario, they might even consider disallowing favourable capital gains taxation.

i for one am surprised at the extent to which the false capital gains reporting epidemic has swept through cmf forum. It's regrettable that persons like yourself, who should know better, are contributing to it.


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## Homerhomer (Oct 18, 2010)

And so he continues twisting things around again ;-)

If you thougth that my extreme politness towards you which you clearly didn't deserve was a request for further patronizing and preaching, you are yet again wrong.

Dude, get off your high horse.

Yours truly
Rudy Crankywrong :hopelessness:


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## Charlie (May 20, 2011)

I've reported in aggregate for years without a problem. So have some colleagues who have dozens (hundreds?) of trades. 

More and more houses are issuing capital gains reports (different from trading summaries). Do always check the cost base. There are often errors if stocks are transferred between accounts, are flow through or have any other oddities. But , for the most part, those capital gains summaries are a godsend.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... take another member's account of the trading summaries which he clearly said he had received from his broker & you clearly advised him to report only the total figures in such summary. Nothing could be more mistaken.
> 
> IB does not provide true capital gains/losses reports. No discount broker provides true capital gains/losses reports.
> 
> ... i for one am surprised at the extent to which the false capital gains reporting epidemic has swept through cmf forum. It's regrettable that persons like yourself, who should know better, are contributing to it.



For broker trading summaries, yes - however, the OP states that two T5008 forms were received. The post and response do not mention the trading summary and appear to refer to these forms.

This CRA link to a blank form has a box 20 "Cost or Book Value" so I suspect the form is only for transactions the broker has full information.
http://www.cra-arc.gc.ca/E/pbg/tf/t5008/t5008-flat-11b.pdf

This other link indicates that the T5008 is for agents or nominees for vendors so I'm puzzled why this form has been used in the first place. :rolleyes2:
http://www.cra-arc.gc.ca/E/pub/tg/rc4268/rc4268-08e.pdf


Cheers


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## humble_pie (Jun 7, 2009)

charlie do you know of any discount brokerage house that is issuing capital gains reports.

a full service broker i can see. A discount broker i can't see. The "service" to the client does not seem worth the uproar it would cause to the broker.

it's not just flow-throughs, spinoffs, some special dividends & duplication of holdings that create errors. Every account transferred between brokerage houses will show a new cost base. Usually this is market price on the day the uptaking broker receives the account securities. This is, of course, *not* the client's cost base at all.

discount brokers don't even have the staff to discuss such a capital gains statement with the client if a client happens to disagree. If i were a discount broker manager, training staff to be general accountants would be the farthest priority from my mind.

lastly, i'm somewhat surprised by your colleagues who may be reporting hundreds of trades per annum with summary numbers, although you do have a question mark over the hundreds. I would have thought the tax authorities would, sooner or later, want to see all the documentation for hundreds of trades a year. I can understand their not bothering with 40 or a few dozen trades a year, but getting up into the 100s is a horse of a different colour.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... lastly, i'm somewhat surprised by your colleagues who may be reporting hundreds of trades per annum with summary numbers, although you do have a question mark over the hundreds. I would have thought the tax authorities would, sooner or later, want to see all the documentation for hundreds of trades a year. I can understand their not bothering with 40 or a few dozen trades a year, but getting up into the 100s is a horse of a different colour.


+1 ... though I suspect it's not just raw numbers of trades CRA is looking at but value as well.

If one has an income of $40K and has a couple of trade that result in a CG of $1 million, I suspect it may be looked at. If one has an income of $150K, where 100 trades results in a CG of $30K I don't expect too many flags to be raised.

... this all assumes that what the broker reports is in-line with what the tax return reports.
This is just my gut feel - I don't have any details.


Cheers


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## Charlie (May 20, 2011)

Just passing on my experience. Aggregate reporting hasn't been a problem from what I've seen. Which isn't to say it won't be. I think volume of trades means more than value -- and the relationship between you and the industry or companies involved seems to be the biggest factor. Again, I haven't seen or read about many CRA challenges to this based on volume/value alone where the investor/trader wasn't immersed in the industry. My observation has also been that people with a very high volume of trades who are not directly involved in the companies they trade tend to lose money . If not right away -- then certainly over time. We're just not as smart as we think we are.


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## Eclectic12 (Oct 20, 2010)

Charlie said:


> Just passing on my experience.
> 
> Aggregate reporting hasn't been a problem from what I've seen. Which isn't to say it won't be.
> I think volume of trades means more than value -- and the relationship between you and the industry or companies involved seems to be the biggest factor.
> ...


So based on your experience - what does a capital gains report look like? Or is there a CRA form?

As for volume being most important - as I say, I suspect there's some sort of rule of thumb or rule that CRA would use to focus on where there it's worth their time to ask for full documentation and/or have the investor potentially dispute being classed as a trader. Their computers probably already have enough info from the broker to do a reasonable spot check against the aggregate total reported on the individual's tax return to see if it's worth a full documentation review. 

Then too - if the individual is making say $5K with 130 trades - CRA declaring the individual as a trader so that the profit has to be reported as income isn't going to net CRA that much more money. If the individual is making say $80K with 45 trades - there's more of a net increase to "pay back" the time required.

As for relationship to the industry or companies, the OP mentions trading on days off so it sounds like the poster doesn't have any such relationships. The few I know who have a relationship such as working for discount broker have talked about placing trades at work, in their spare moments - not their days off. I suppose it could vary by the position held.


Cheers


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## Charlie (May 20, 2011)

The capital gains report is an in-house report. Not a CRA form. It usually says "CAPITAL GAINS REPORT" at the top. And has a slew of caveats at the bottom. Don't know if discount brokers issue them...possibly they will, as their reporting gets more sophisticated -- anything to differentiate. Who knows. Currently most full service brokers do -- bmo, td, rbc all do. 

We've strayed off topic. I think we all agree the OP has nothing to worry about here.


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## MoneyGal (Apr 24, 2009)

IMO the issue is not reporting in aggregate - this is standard practice in many areas of the tax form, from charitable donations to medical expenses - but relying on the CG summaries issued by the brokerages. _These are often wrong. _ I could give examples but suffice it to say that the standard advice is to use the actual trading slips, not the summaries. And then report away in aggregate!


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## humble_pie (Jun 7, 2009)

but Charlie if you just have one summary figure to report, ie net gains or else net losses, why would you want a special in-house report, why not just plug the figure straight into the cra schedule ...


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## Charlie (May 20, 2011)

Agree with MG -- you REALLY have to check the reports. They're a good base -- but often have errors.

HP I think we're talking around each other....some houses are able to pull a report that gives you the info to record on the tax form schedule. (subject to verifying it). Saves digging it up from multiple yrs trading summaries or slips as long as the numbers look reasonable. Some might enter it line by line, other aggregate it -- I can see the benefits of both methods and don't really think there's one method that's necessarily better.


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## Eclectic12 (Oct 20, 2010)

Charlie said:


> Agree with MG -- you REALLY have to check the reports. They're a good base -- but often have errors.
> 
> HP I think we're talking around each other....some houses are able to pull a report that gives you the info to record on the tax form schedule. (subject to verifying it). Saves digging it up from multiple yrs trading summaries or slips as long as the numbers look reasonable. [ ... ]


Hmmm ... if one has to verify it anyway, other than assurance that one's own numbers are correct, what's the value? IMO, it's the same amount of work to verify the broker given summary number as it is to just calculate it yourself.


Cheers


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## avrex (Nov 14, 2010)

*Re: Reporting Aggregate vs Reporting Individual transactions*



avrex said:


> 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.


This debate is ongoing. 
Some people report in an aggregate fashion. Some people report individual transactions.

Here's a Q&A snippet taken from MoneySense: Stump Jacks on tax.

Peter: 
_I do about 200 trades a year. Can I assemble all trades into one final total instead of having to input each one, one line at a time?_

Evelyn Jacks:
_First, assuming you're making money through these transactions, you might want to make an election to have them all treated as capital in nature. Use form T123 to do this. 

For both the options and stocks when you file your return, CRA will only get two numbers: your total proceeds from all of your transactions and your total net gain or loss from these transactions . . .so . . .for filing your return, the individual transactions don't have to be entered into the software but remember if you're audited, CRA will want to see details of each of these transactions, so be sure you have the individual transactions backed up on a spreadsheet to provide the necessary detail._


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