# Day Trading tax questions



## MTLTrader (Jul 31, 2015)

Hi everyone,

I've been looking alot at day/swing trading lately, reading alot on the subject, playing around with a "paper trading" account, looking at different brokers, commission structures, fees etc etc.. The one thing I have a hard time finding concrete info on is canadian tax laws on this... 

So far I've figured out this will be defined as a business income due to the nature and frequencies of the trades, but since I'll be buying and selling often the same stock, I'm unsure as to how the "Superficial Loss" rule will apply to my situation? I've read some places that it is only for capital gains (which are not going to be my case since it's considered a business income). 

Anybody around here who has been doing this before and would care to share a few insights on the tax process when day trading?

Oh, and I already see a flow of people telling me "Don't do it!", I appreciate the warning, I get it, I've read about it, I know stats says that 9 out of 10 day traders loses money. I also don't expect to become a millionaire overnight.. But i've also been doing alot of paper trading (last 5-6 months) and I've had good enough results, commissions and fees included, to need to take a plunge with real money to try it out


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## Woz (Sep 5, 2013)

Superficial losses only apply to capital property. If you’re in the business of trading stocks then you wouldn’t have superficial losses and even if the superficial loss rule did apply, it wouldn’t really be a factor for a day trader as most day traders would close out their positions by the end of the year.

From the CRAs website:

“A superficial loss can occur when you dispose of capital property for a loss and …”

http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/lss-ddct/sprfcl/menu-eng.html

The CRAs definition of capital property:

“Capital property includes depreciable property, and any property which, if sold, would result in a capital gain or a capital loss. You usually buy it for investment purposes or to earn income. Capital property does not include the trading assets of a business”

http://www.cra-arc.gc.ca/tx/ndvdls/...ns101-170/127/glssry-eng.html#Capitalproperty


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## humble_pie (Jun 7, 2009)

woz isn't it some kind of inventory adjustment thing, for a professional trader?

like, one buys, one pays out to add to inventory. One sells, one receives proceeds from partial inventory sale.

the moral of the story is that someone who has play-traded & needs to ask these questions is not yet ready to go into the business full-time, imho

EDIT: what i mean to say is that the professional trader takes shares into income or removes shares from income at 100% rate. There may be a few adjustments.


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## Kulzerdipadova (Jul 17, 2015)

I heard that "If shares are disposed of at a loss inside your TFSA, there will be no superficial loss if the shares are repurchased within the TFSA within 30 days, as gains and losses in a TFSA are not taxable or deductible". 

Thanks for sharing..


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## MTLTrader (Jul 31, 2015)

Thx for the reply guys.

Woz: I did find that on the CRA site, it was under my interpretation that the superficial loss rule was only for Capital Gains, which would not be my case since it should be a business income. (Buying the same set of securities day after day, buy and sell on the same day). It just seems a little bit grey and open to interpretation. Also, seem the CRA is always a little bit open to interpretation when it comes down to trading vs investing... Hence why I'm lurking alot of the trading forums to see how other traders have been filing taxes.

Humble_Pie: Indeed, that's why I am posting on this forums, I'm looking for more information before I actualy start trading... 

Kulzerdipadova: That would be risky... If ever the CRA decides that you are running a business under a TSFA, you risk being audited... And there as been many known cases of the CRA auditing people who grow their TSFA alot by day trading. That's something I'd like to avoid


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## Eclectic12 (Oct 20, 2010)

Kulzerdipadova said:


> I heard that "If shares are disposed of at a loss inside your TFSA, there will be no superficial loss if the shares are repurchased within the TFSA within 30 days, as gains and losses in a TFSA are not taxable or deductible".


Technically ... I suppose so.

A day trader using their TFSA is already paying the double penalty of:

1) losing the ability to write off 100% of losses against other income.
http://www.jamiegolombek.com/printfriendly.php?article_id=540

2) the loss is destroying TFSA contribution room. Unless other investments make money to be able to cover it - one is falling behind. For example, if one maxes out their TFSA contribution room, buys $5K worth then sells for a loss to net $3K - there's only $3K available to rebuy with. The only sources to be able to buy more are gains from other investments or fresh TFSA contribution room to add more funds.


I'm not sure how long one can last day trading if the losses outweight the gains - given that there is a cap on fresh money being thrown at it. The day trader who is using a taxable account is only limited by what money they can get their hands on.


Cheers


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## Eclectic12 (Oct 20, 2010)

MTLTrader said:


> ... So far I've figured out this will be defined as a business income due to the nature and frequencies of the trades, but since I'll be buying and selling often the same stock, I'm unsure as to how the "Superficial Loss" rule will apply to my situation? I've read some places that it is only for capital gains (which are not going to be my case since it's considered a business income).


That is correct ... however, as a day trader while you are reporting income at 100% - you can also deduct 100% of losses, including against other income.

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


The regular investor who is reporting CG at 50% can only apply CL against other capital gains, not other sources of income.




MTLTrader said:


> ... Oh, and I already see a flow of people telling me "Don't do it!", I appreciate the warning, I get it, I've read about it, I know stats says that 9 out of 10 day traders loses money. I also don't expect to become a millionaire overnight.. But i've also been doing alot of paper trading (last 5-6 months) and I've had good enough results, commissions and fees included, to need to take a plunge with real money to try it out


Maybe it works and maybe it doesn't ... I've worked with guys who figured their paper trading validated their strategy, where they "knew tech stocks". They started trading just before the tech crash and gave it up after losing money in three months. I started at the same time, diversified and was up when they were down.

Or perhaps a better example - a co-worker figured winning eight stock market paper-trading games over five years meant his method worked. In the real world, it worked while everything was going up. The first significant dip brought a big enough loss that he is no longer a DIY investor.


Question is ... what makes you confident which camp you fall into?


Cheers


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## Robillard (Apr 11, 2009)

I traded for about 9 months through a daytrading firm. For tax purposes, you are taxed on your net earnings (gains net of losses). Your income from this is treated like an income from active trade or business. I can't recommend trying to claim that you are making capital gains, or trying to engage in trading via a registered account. 

In my experience, generating net positive daytrading results wasn't too difficult. My problem was scaling up my trading in order to generate sufficient income to live on. Psychologically, I couldn't bring myself to move such volume with so much leverage. Eventually I ended up quitting to do a "real" job.


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