# Tax on stock capital gains?



## Getafix (Dec 29, 2014)

Hi guys,

I have maxed out my TFSA and want to use a non-registered account for swing trades. I know that only 50% of capital gains are taxable but i wanted to confirm the exact taxation percentage on any potential gains. 

I make $40'000 a year, so according to this table my combined Federal and Provincial tax on capital gains will be 10.03%:

http://www.taxtips.ca/taxrates/on.htm

So does that mean in actual fact i will be only paying 5% tax on captial gains, considering that only half the income is getting taxed?

Thanks for the help.


----------



## tenoclock (Jan 23, 2015)

Your marginal tax rate at 40,000 is about 24% (federal and provincial combined) if you happen to live in Ontario..and above $44,701.. it will be $31%.. 

See: http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

Capital gains will be taxed at half of that.. so 12% or 15.5% depending on how much and what level of income they put you in.


----------



## Eclectic12 (Oct 20, 2010)

Getafix said:


> .... I make $40'000 a year, so according to this table my combined Federal and Provincial tax on capital gains will be 10.03% ...
> So does that mean in actual fact i will be only paying 5% tax on captial gains, considering that only half the income is getting taxed? ...


No ... Capital gains are included at a rate of 50% ... which is reducing the tax rate indirectly. 
The table lists 20.05% for income, where that multiplied by 50% gives pretty much 10.03%.

To end up with 5% ... capital gains would have to be included at a rate of 25%.


If you want to confirm it for yourself, check out the tax form Schedule 3 ... most of the form sets up the different types, included section 3 "Publicly Traded Shares". The capital gains or losses are totaled towards the bottom of the form on line 197.

The next step for a capital gain is to multiply line 197 times 50% (this is where the amount is reduced) to end up with line 199 "Taxable Capital Gains". Line 199 is the transferred to the T1 form on line 127 "Taxable Capital Gains" and is added to one's income, the same as other income sources such as employment, rental, pension, taxable amount of dividends, RRSP etc. 


Also bear in mind that the ranges are a moving target ... if one's taxable income (i.e. no RRSP contribution to reduce the $40K income) where one is reporting a taxable capital gain of $15K ... some of that income is going to be taxed at a higher rate.


The other question is how often are you looking at making swing trades?

If one passes too many of CRA's criteria, the capital gains and losses are considered business income instead of a capital gain ... resulting in 100% being included instead of the capital gain's 50%.

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


Cheers


----------



## CPA Candidate (Dec 15, 2013)

Eclectic12 said:


> The other question is how often are you looking at making swing trades?
> 
> If one passes too many of CRA's criteria, the capital gains and losses are considered business income instead of a capital gain ... resulting in 100% being included instead of the capital gain's 50%.
> 
> ...


Indeed, trading is a business and NOT investing, hence those gains are treated differently and fully taxed as they should be. Tax breaks are reserved for real investors.


----------



## tenoclock (Jan 23, 2015)

Swing trades won't be in any danger of being classified as employment income. Besides the claim that small gains from swing trading are a substitute for employment income is easy to challenge. You need not worry about it much.


----------



## Eclectic12 (Oct 20, 2010)

YMMV ... another poster indicated they were "playing" with a small part of the overall portfolio to the tune of 50 stocks with multiple buy/sell pairs per stock.

Whether the gains amounted to enough to be larger than employment income wasn't indicated.


Cheers


----------



## CPA Candidate (Dec 15, 2013)

tenoclock said:


> Swing trades won't be in any danger of being classified as employment income. Besides the claim that small gains from swing trading are a substitute for employment income is easy to challenge. You need not worry about it much.


Business income not employment income.


----------



## tenoclock (Jan 23, 2015)

Yes *correction* - business income. But OP can argue he is not running a business and has full time employment which is the primary source of income. 

So while there is a possibility of a tussle with CRA when you are making huge gains with your swing trades (as some people have found out doing the same in their TFSA), I am simply saying that the probability of that happening is very low.


----------



## Eclectic12 (Oct 20, 2010)

^^^^

Fair enough ... though the TFSA reports IMO should cause one to pause and think about the possibilities.

Those profiled figured that their regular employment plus the TFSA being tax free meant zero probability that CRA would claim their trades were a business ... yet that is what CRA is reported as doing. So far the reports are that those in this situation don't seem to be willing to fight CRA ... so without some other indications, it's not clear what position would prevail.

I'm with you that the employment income should mean it's not a business but I've seen odd judgements/interpretations over the years.

Cheers


----------

