# Disallowing Profits Built Up in a TFSA



## ttibsen (Sep 27, 2015)

Concerning trading stocks within a TFSA - I am wondering whether there are any rules regarding the frequency of trading? I know that the CRA has disallowed some profits accrued in these accounts on the basis that the stocks in the accounts were traded too frequently.My inclination is to sell a stock once I have what I consider a decent profit and this usually translates into a 3 - 4 month time frame. I then move on to the next opportunity. This is the way I approach investing in my non RRSP portfolio. So if it were up to me, I estimate that if I have 3 stocks at any given time in the TFSA and they get traded 4X / year, there would be 12 trades within the TFSA. Would this pass the test for the CRA folks? Frankly, I can't understand why they are looking at this issue at all. They were the ones who set up the program so why do they care what goes on inside the TFSA?


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## OnlyMyOpinion (Sep 1, 2013)

https://www.google.ca/amp/business....cks-the-cra-may-see-it-as-business-income/amp
Some recent discussion here. It will be useful for you to know why the CRA cares whether you are carrying on a business /sheltering business inciome within a TSFA.


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## ttibsen (Sep 27, 2015)

That was a very helpful link - thanks. I am guessing, on the basis of what I read in the piece, that I would be OK with the 12 trades / year that I have in mind for my TFSA. It still doesn't change my opinion that the CRA should get its mitts off interpreting the activity within a TFSA. They provide us with the vehicle and it shouldn't be any concern of theirs as to how we conduct our trading within it.


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## gardner (Feb 13, 2014)

One of the triggers for TFSA scrutiny is if any of your TFSA holdings was leveraged. Holdings exceeding the contribution room + some threshold yield, that the CRA won't specify, is also a factor.

This is a bit outdated, but does outline the lack of clarity in this area
http://m.investmentexecutive.com/back-issues/tfsas-iiac-seeks-clarity/



ttibsen said:


> Frankly, I can't understand why they are looking at this issue at all.


You clearly have not studied the operation of the CRA, have you?


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## Nerd Investor (Nov 3, 2015)

I can't imagine you'll have any anything to worry about with those holding periods.


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## Eclectic12 (Oct 20, 2010)

ttibsen said:


> ... Frankly, I can't understand why they are looking at this issue at all. They were the ones who set up the program so why do they care what goes on inside the TFSA?


CRA came up with the TFSA?

The finance minister of the day that passed a budget with the TFSA in it would be surprised to hear it was CRA's work. The modifications to the potential penalties as well as more details on what was not allowed that was drafted eight months later as well.

While I am sure the Finance department and CRA consulted each other ... at the end of the day, if the gov't in power is concerned or is not concerned is the more likely driving force.


Cheers


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## ttibsen (Sep 27, 2015)

Just curious - do these concerns apply to RRSP's as well? I ask because I do have leveraged products in there in the form of Horizon ETF's? Am I going to get nailed because of them?


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## peterk (May 16, 2010)

ttibsen said:


> I am guessing, on the basis of what I read in the piece, that I would be OK with the 12 trades / year that I have in mind for my TFSA.


This thread is definitely a contender... along with James4B's Gas-can-exploding-on-the-balcony thread, for the "Biggest Worry Wart Questions in CMF" award. :wink: Maybe it can be an annual poll?

Yes, I think you will able to make 12 whole trades per year in your TFSA ttibsen.


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## Mechanic (Oct 29, 2013)

Once the government has bled as much as they can from small business with their new tax changes, there focus will likely turn to TFSA next. There`s lots of room to grab some extra spending money (taxes) for them there. Hopefully Trudeau will be gone before it comes to that.


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## gardner (Feb 13, 2014)

ttibsen said:


> do these concerns apply to RRSP's as well?


Perhaps at some level, but less so at least, because everything coming out of the RRSP is income anyway. Since it will be taxed at full freight on the way out of the RRSP, the CRA is less concerned with how you achieved the gains. The ability to generate earnings entirely without tax is the unique magic of the TFSA.


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## Eclectic12 (Oct 20, 2010)

I imagine it as a short conversation.

Concerned lackey .... "What about RRSPs that have day trading?"
Higher Up ... "When withdrawn it is taxed the same way and if the holder dies before draining the RRSP, either it is one big lump sum tax hit or it rolls into another spouse's RRSP to increase the chances of a future big tax hit ... why bother?"


The TFSA on the other hand, is where Canadian tax revenue is definitely lost.


Cheers


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## kcowan (Jul 1, 2010)

Recognize that even trading profits declared in your income will be considered at 100% taxable if they conclude that it is run like a business. The TFSA is just a subset.


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## Pluto (Sep 12, 2013)

^

Yes. Lots of people do 12 trades a year in non-registered accounts and don't report being labeled as a business.


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## peterk (May 16, 2010)

Isn't this all just egregious fear mongering?

The article is titled: "Stop using your TFSA to frequently trade stocks"

Then it goes on to say "there is no plan to provide any additional guidance specific to TFSAs."

And their "recent" example meant to scare us is about this one time in 2009 that some high profile banking executive was trading with 2.5M in an unregistered personal account and got nabbed for business income???

Is there a single example published of a regular person with a day job who makes dozens or even hundreds of trades in a TFSA who has made moderate profits from it and has been reassessed for business income?

The only stories I've EVER heard were about penny stock traders who struck it rich and had hundreds of thousands or millions in their TFSAs, or those guys who were over contributing on purpose and still making out like bandits after paying the fines. 


And poor ttibsens has to come here worrying about his 1 trade/month.

I've made ~90 transactions in my TFSA over the past 3 years. Buying, selling, trimming, rebalancing... I wasn't even keeping track in the 5 years before that. And I'm completely amateur-hour compared to I'm sure a great number of more serious investors/traders.


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## Eclectic12 (Oct 20, 2010)

peterk said:


> Isn't this all just egregious fear mongering?


IMO, it depends on how closely the OP sticks to the low number of trades. Not having any connection to the investment industry or training probably also helps establish one is "not in the business".

Either way, I'm a fan of more info than being burned later by assumptions.




peterk said:


> ... their "recent" example meant to scare us is about this one time in 2009 that some high profile banking executive was trading with 2.5M in an unregistered personal account and got nabbed for business income???
> 
> Is there a single example published of a regular person with a day job who makes dozens or even hundreds of trades in a TFSA who has made moderate profits from it and has been reassessed for business income?


The Quebec investment dealer in this article likely thought he was a "regular" guy as he had a day job. In his case, the TFSA supposedly was build up to $180K with about 200 trades.
http://business.financialpost.com/p...any-wins-in-their-tfsa-being-targetted-by-cra


Cheers


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