# Day Trader Taxes



## shoichi

I am a day trader and am at a point where I am now consistently making money. After reading the CRA website, I realized that my profits will now be taxed as income rather than capital gain. 

Someone suggested I can register a corporation and that way, I will be able to trade as an employee of that corporation and draw out a salary. 

Would this help me pay less taxes ?


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## Cal

You should discuss the potential set up of a corporation and the tax implications with your accountant.


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## MoneyGal

It really depends on how much money you are consistently able to leave in the corporation. 

The lower tax rates for a corporation really only work if you are not drawing out everything you make. 

There's a basic cut-off point, too, where the higher costs of incorporation are offset by the tax-sheltering potential - the last time I ran the numbers (for Ontario) I pegged it at about $200K gross, leaving a relatively substantial amount in the corporation, to offset the higher additional costs associated with establishing and running a corporation. 

There are other considerations and advantages associated with incorporating beyond tax-sheltering, and some of them play out over very long timeframes (I'm mostly thinking about the capacity to income-split and to roll assets over to family members, especially as the corporation winds down).

Of course, you will need to build your own models and get advice beyond an anonymous Internet forum...


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## Mockingbird

Professional subscriber fees are something you need to think about when trading under the corporation. Many brokers will have a higher data fee structure (or additional ones) as the corporation is categorized as a professional account.

Agree with the folks above - talk to your accountant.


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## Farly

Another thing to consider is that if you incorporate, any losses have to be applied to income within the corporation. If you are not incorporated, losses can be applied against other income.

Not an issue if you keep making money, but with day trading who what the future holds.


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## Kirkx

shoichi said:


> I am a day trader and am at a point where I am now consistently making money. After reading the CRA website, I realized that my profits will now be taxed as income rather than capital gain.


The guidelines on CRA website were created many years ago. CRA is completely unprepared to deal with day traders, futures trading, forex trading, CFDs, etc. They just don't care much because there are very few successful full time traders in Canada, most people who try, lose money and then if trading is reported on income account CRA is obliged to issue a refund. That's why they don't mind if you report your trades on capital account. The only issue what matters is consistency of reporting, either income or capital every year, no switching around.

Before you setup a corporation just report everything as capital gains or losses. When CRA objects, then consider a corporation.

Below are a few threads from another forum which you might find helpful:

http://www.financialwebring.org/forum/viewtopic.php?f=32&t=111824

http://www.financialwebring.org/forum/viewtopic.php?f=32&t=111646

http://www.financialwebring.org/forum/viewtopic.php?f=32&t=111766

http://www.financialwebring.org/forum/viewtopic.php?f=32&t=111653


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## Wishful_Aspirations

shoichi said:


> I am a day trader and am at a point where I am now consistently making money.


Don't mean to take this thread sideways... however feel free to enlighten us with any proven strategies 

I usually get on a good streak, and almost always get my *** handed back to me.. I think my issue is needing a better exit strategy.


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## shoichi

I only day trade two securities. FAZ and FAS.. they move in the opposite of each other. so when one goes up, the other goes down. The beauty of them is that you will make money whether the markets are up or down. On the day that the markets tanked last week, FAZ was up by 25%. Look at the 1 min and 5 min charts. Plot some indicators like MACD and moving averages and watch how they behave. do a couple of months of trading on fake money or paper money. Interactive Brokers offers a paper money account with 1 million in it. With a few months of practice, it is very possible to make 1 to 5% a day on the Fs. 

Thanks for the advice everyone. I will speak with my accountant in a few weeks and will definitely report back.


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## junior minor

Here is an interesting point of view on things. Slightly late to toss my two cents, just thought I'd share. You can earn $50K in tax-free dividends, but there's a catch: You can't have a job.

My question: is it ok to register a corporation solely for such purposes, and then have another for, well, regular day job income? I have yet to find a fiscalist accountant that can tell me more information regarding this.


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## Eclectic12

Sure ... I expect one can setup two corporations for separate purposes.
IMO, the key question is whether the benefits outweigh the hassle and expense.

I'm not an expert but my understanding is the gov't has changed the rules a couple of years ago so income from investing (aka passive income) is taxed more heavily than active business income. It looks to me that separate corps will keep the tax situation separate and simple. All the investment corp's income will be at the higher rate and all the business corp's income will be at the usual, presumably lower rate.

I'm not sure if the separate investing corp provides any benefits versus investing as an individual. Especially if you can control the income from the business corp to you as an individual.








Investing personally or in a corporation | Advisor's Edge


How passive income rules factor in to the decision




www.advisor.ca






Cheers


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