Why Day Trading in Tax-Free Savings Account (TFSA) Is NOT Allowed - Court Case Explained

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  • Опубліковано 5 вер 2024

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  • @RealEstateTaxTips
    @RealEstateTaxTips  Рік тому +1

    If you want to find out the specific rules and reference to the original court case, visit our blog realestatetaxtips.ca/how-a-tax-payer-got-a-600k-tax-bill-from-tfsa/
    Want to stay up-to-date with all the latest news about Real Estate Tax Tips, receive weekly tax tips and free real estate investment resources? Subscribe to our newsletter here:
    realestatetaxtips.ca/youtube

  • @jimc9516
    @jimc9516 5 місяців тому +19

    what i learned today: do not use any "advantage" accounts that CRA provides, do not trust CRA when they say "we won't charge taxes", assume the government is constantly monitoring your every transaction, do not try to make money in Canada

    • @coco_quest
      @coco_quest 3 місяці тому +5

      yeah they hate people who want to have a better life.

  • @jimwhite1756
    @jimwhite1756 Рік тому +19

    He took all the risks and the government bends their own rule to take half the spoils. If the court ruling considers this scenario as day trading then any investment losses within TFSA should be allowed to be claimed as capital loss for tax purposes...bet the CRA would not agree when it's the other way around.

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      Haven't seen a court case on TFSA losses being business loss unfortunately :(
      Some people did argue for business loss in their regular non-registered trading account BUT CRA disallowed it.

    • @Miriam-us8bv
      @Miriam-us8bv Рік тому +5

      That's a very good point. Government always gets their cake & eat it too....we just do all the baking!

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому +2

      they have the power to take our money as they please . If the court was there to protect us the tax payers , it would dismiss the case . The rules should be very clear !

  • @toluca56
    @toluca56 5 місяців тому +15

    What is the minimum holding time to not be considered "day trading?" Less than 1 year? or more? If it can be arbitrarily determined by the CRA, then nobody is safe.

    • @jomellozano8857
      @jomellozano8857 5 місяців тому +2

      Id like to know as well

    • @supercompooper
      @supercompooper 5 місяців тому +1

      They arbitrarily decide. They pretend to know it if they see it and judge if they can get away with it

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому +4

      seams there are no rules , they make the rules as they please to take your money .

    • @madelainepetrin1430
      @madelainepetrin1430 Місяць тому

      Well if I judge day trading means trading daily, then weekly should be fine. I sell when my stock is up and buy when it's down a few times a month.

  • @jimthornton6774
    @jimthornton6774 Рік тому +13

    There was another case that I read where someone working in the industry (a financial advisor) did around 50 trades in the year. A far cry from "Day Trading". CRA determined that he was operating a business in his TFSA and they were disallowing the tax exempt status. I can't seem to find the follow up on it as it hit the news a while ago. That said, he was determined "running a business" mainly because of his knowledge of the industry as he was an advisor.
    It's frustrating that they don't give a set of rules. It's unfair that just because you are knowledgeable and work in the industry that you are considered "running a business". However, in his case, he made the argument that he bought a stock for investment purposes and sold it when "his system" indicated that he should. It resulted in approximately 50 trades within the year, but because he made a large amount of money, it was all taxable.
    The funny part is, if you invested in a mutual fund it wouldn't be considered "running a business". Some mutual funds have turnover in their portfolios of 3-5x their overall value. Meaning, if they are managing $500M then traded $2.5B in that fund throughout the year. If I buy that mutual fund, then it's not active trading, but if I do those exact trades in my account it is. HUH???
    It's just like the government. Here is a TAX FREE savings account and you can invest the money, you can later take it out TAX FREE. (But... If you make to much money, we're going to back out on that deal and tax you even though we said we wouldn't).
    It's not that I feel "day trading" should be allowed in a TFSA, because I understand that no other business is allowed to run inside of a TFSA and therefore day trading shouldn't be allowed either. But, there should be a black and white definition of what day trading is.

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому +1

      There are several factors that the CRA would take into consideration, you hit on one of them, "their knowledge of the industry", another consideration is the number of trades. A third consideration is the ROI, if it was just one trade that resulted in an amazing return, a "unicorn" so to speak than he would have been fine, but when looking at the number of trades and the ROI of them overall it could be considered as running a business. There are many factors that go into being considered "running a business inside a TFSA" and they are looked at in aggregate to make that determination.

    • @Don.Challenger
      @Don.Challenger 11 місяців тому

      @@RealEstateTaxTips So, if each stock purchase made in the TFSA plan wasn't traded/closed out within a year of being made would that preclude a day trading designation, or perhaps being able to demonstrate that you also do day trade but do so with a regular unregistered account or within your RRSP account (in that way maintaining perhaps a base position in a stock held in the TFSA for the intermediate and long term and other positions in the same stock that fluctuate over the year to take advantage of shorter term market valuation variation in your separate RRSP and unregistered accounts held at different financial institutions to reinforce that separation).

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому

      the government wants you to be a looser not a winner and keep buying their bonds which pay less then the inflation every year . The loses in trading in TFSA are not tax deductible , so why they tax only the winning trades how fair is that ? So when I lose is ok. , when I win I am being robbed by the taxman .

    • @karen406
      @karen406 4 місяці тому

      ​@RealEstateTaxTips so is this an indication that they're spying on all of our trades? How do they know how much we are trading?

  • @haseeb9090
    @haseeb9090 5 місяців тому +6

    I do swing trading. I hold stocks from weeks to months at a time. Would this still be considered day trading?
    The stocks I traded are (largely) not speculative in nature and some even pay dividends.
    Like, last year I only had ~100 trades or so.
    Considering what you mentioned in the video, it seems like it’s okay?
    But yea, it sucks that you lose money it’s on you but if you gain, you have to pay tax.

  • @telegramtrader
    @telegramtrader 10 місяців тому +5

    It's too much arbitraries in the hands of government. I'm better moving country then investing in TFSA. It's not a good deal at all. It takes knowledges about the market to invest your wallet with TFSA yourself, but having knowledge mean that you are a day trader.

  • @ML-gg1ju
    @ML-gg1ju Місяць тому +1

    I did not get the answer for the fundamental question, which most traders will be wondering too and reasons for watching the tfpa topics related to day trades like yours. Please, appreciate, the definition of the day-trade activity, not a description/in word, but with numbers. Thanks.

  • @shivambansal5203
    @shivambansal5203 3 місяці тому +2

    Can we file day trading loss as a business loss occurred in TFSA against other income?

  • @skullwise
    @skullwise Рік тому +5

    Thanks a lot for this amazing video.

  • @karen406
    @karen406 4 місяці тому +2

    What happens if you swing trade? Trading the same stock about every 30 days? And just 1 or 2 stocks? What would happen then?
    It can be too boring trading otherwise for I like a bit of action.

  • @Vancouver_Island_Guy
    @Vancouver_Island_Guy 10 місяців тому +12

    So nice to have this thing called government controlling every aspect of our lives isn't it. True North strong and free 😂😂😂

    • @tokertalk9648
      @tokertalk9648 Місяць тому

      Yep. Makes you want to break the law!

  • @RuelMorales
    @RuelMorales 6 місяців тому +2

    Is it true that you are OK to say trade within an RRSP, but not a TFSA? I love your channel by the way!

    • @jptrainor
      @jptrainor 5 місяців тому +1

      Not the same issue for the government because you'll be paying tax on your RRSP when you withdraw the funds. So no no loss in tax revenue for the governemnt. In fact, they can come out ahead because your capital gains in your RRSP account will be taxed as income when they come out.

  • @kevincameron192
    @kevincameron192 7 місяців тому +1

    I've had advisors with two big banks disagree with this ruling.

    • @RealEstateTaxTips
      @RealEstateTaxTips  7 місяців тому

      We can disagree with this all day long, the judge ultimately decides based on the rule.

  • @yandhi4202
    @yandhi4202 9 місяців тому +1

    This was interesting thank you for the video!

  • @ripe_avocados
    @ripe_avocados 5 місяців тому +1

    Can you please make a video on taxes for Canadian day traders?

    • @RealEstateTaxTips
      @RealEstateTaxTips  5 місяців тому +1

      Sounds like a good idea. I will add it to our list of potential topic.

  • @xkrimzonxrsps
    @xkrimzonxrsps 9 місяців тому +4

    I did about 50 trades, maybe more the past 2 months because of how the market was reacting, and I was indecisive. Will they f*** me?

    • @alexanderchin2752
      @alexanderchin2752 3 місяці тому +1

      I did 50 trades in under a month and all i did was lose money on every trade I don’t know if I will be affected

    • @jeffkukkee
      @jeffkukkee 2 місяці тому

      It has to settle when you buy a stock.... 5 business days. I believe that your allowed 12 day trades a year... things happen... but this is all word of mouth, and not based on anything that I can point you towards, and the amount of money.

  • @conspal3718
    @conspal3718 11 місяців тому +1

    Rule 1 & 2 Frequency and Duration respectively: Ex. If I buy stocks in a daily basis but hold them all in a month or 2, does it mean day trading? It is just like saving in a daily basis and withdraw it when it is needed.

    • @RealEstateTaxTips
      @RealEstateTaxTips  11 місяців тому

      The answer is maybe, as CRA may also consider the type of stock being held. CRA will look at all of the criteria and evaluate. That is why this is such a tricky area to be investing in with any frequency.

    • @benyaalahamza6241
      @benyaalahamza6241 6 місяців тому

      i dont think so as long as he doesnt sell. buying is not taxeble event@@RealEstateTaxTips

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому

      @@RealEstateTaxTips if yes then it is a robbery in day light . We are taxed to death and yet people keep supporting this .

  • @bobnto
    @bobnto Місяць тому

    Since you only have to report contributions and withdrawals from a TFSA to CRA, we can assume that Big Brother is monitoring everyone's accounts now and cherry-picking the ones that do well...who knew? Now that I'm retired I have a lot more time to studying the market, but I guess I shouldn't because doing so might be deemed "running a business"...

  • @chineduogbonna6947
    @chineduogbonna6947 Рік тому

    Thanks for providing us subscribers with regular detailed accounting/tax education.
    I trade contracts for difference (CFD’s). It’s a leveraged product like futures and Brokers thus charge overnight carrying/financing/holding costs.
    These costs add up over a year especially in high interest environment. Are Brokers Overnight Financing Costs a Tax Deductible Expense?

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      Yes the Brokers Overnight Financing Charges are deductible against the income earned

    • @sidb9540
      @sidb9540 Рік тому

      switch to CMC markets for trading CFDs..( I do) ... there's 0 commission and holding costs for limited time... and they keep extending the limited time! :)

    • @chineduogbonna6947
      @chineduogbonna6947 Рік тому

      @@sidb9540 what do you mean by "..limited time!"? I am also using CMC markets and all CFD brokers charge overnight financing/holding costs for daily contracts, given they are providing leverage.

  • @jn9665
    @jn9665 Місяць тому

    So daytrading is allowed in RRSP? If so, what if the gain held through when you age is 65(which eligible to retired)?

  • @noodleman5916
    @noodleman5916 8 днів тому

    does this apply to options contracts?

  • @milo_ipkissqc8312
    @milo_ipkissqc8312 3 місяці тому

    @RealEstateTaxTips I don't understand in the video from 11:31 to 11:41 Is selling a stock to buy another one considered a withdrawal if the money stayed in the RRSP account the entire time?

  • @Jancan20
    @Jancan20 21 день тому

    I have lost money day trading in tfsa, Is CRA going to share my loss

  • @johnklutz1403
    @johnklutz1403 5 місяців тому +1

    Question, if I bought NVIDIA early last year and decide to sell it this year to take profits instead of waiting for a correction, is this taxable? CRA is so vague with this. I tried calling them and the agent can't even tell and tried to sending me resources from their website which is still vague.

    • @peterjurt1141
      @peterjurt1141 5 місяців тому

      From my experience that is totally fine, I bought Tesla and held for 4 months made a big profit and sold to put a downpayment on my house and no problem. It's more of a day to day trade that will sign alarm bells.

    • @johnklutz1403
      @johnklutz1403 5 місяців тому

      @@peterjurt1141 thank you so much for your response!

    • @rossmacintosh5652
      @rossmacintosh5652 5 місяців тому

      John, if you bought and sold the NVIDIA within a TFSA or RRSP, any profits would not be taxable. (Although when you take money out of an RRSP, all withdrawals will be taxable in the year they are withdrawn). If your brokerage account isn't a TFSA or RRSP, the account is considered taxable. In such an account all the transactions are reported to CRA by the brokerage. You are required to declare on your income tax return any capital gains, distributions, or dividends resulting from your use of the taxable brokerage account. If you don't, CRA will know and can come after you for tax evasion. A quick visit to your MyCRA account will show you exactly what brokerage transactions CRA knows about. Review the tax slips. They were submitted by brokerages, employers, pension funds, etc.

  • @toddm599
    @toddm599 5 місяців тому +1

    Great video, thanks.
    What is the tax if its determined you day traded?

    • @RealEstateTaxTips
      @RealEstateTaxTips  5 місяців тому

      Advantage tax can be quite expensive.
      www.canada.ca/en/revenue-agency/services/tax/individuals/topics/anti-avoidance-rules-rrsps-rrifs/tax-payable-on-advantage.html

  • @tonny9168
    @tonny9168 4 місяці тому

    If I sell covered calls on my stocks will it be considered carrying on business? I know there are no black-and-white answers with the CRA. I want to take advantage of covered call writing in my TFSA.

  • @patientzero291
    @patientzero291 5 місяців тому

    There's other accounts for day trading. TFSA is for long-term prosperity like other savings account.

    • @RealEstateTaxTips
      @RealEstateTaxTips  5 місяців тому

      that's what the government's original intention

    • @JD_-_
      @JD_-_ 5 місяців тому +1

      The days of buying stocks and forget about it are gone.

    • @jamesready5
      @jamesready5 16 днів тому

      If it was truly meant to be like any other savings account then why did they allow investing in anything through the tfsa?
      Why not then only allow it to be a “high interest” account?
      Let’s be real, investing in any company is speculation.
      Theranos, Enron, BlackBerry, Nortel, Bre-x mining…..I’m sure there are lots more. Pretty sure at the time those were not considered volatile, yet people lost everything.
      If we can invest in the markets, let us invest in the markets. All of it.
      Knowing when to realize a gain and go to cash while the bear market runs, then buy more of the same before the bull market to then realize more gain is just smart investing. It is NOT day trading, or a business.
      God forbid as individuals we invest time in researching securities to make an informed decision before spending our after tax dollars to try and beat inflation and take our future in our own hands and have that held against us.
      (We all know what they think about informed decision now)
      Finally the average person has tools to get ahead. They just don’t like that you will get ahead and not be dependant on them.
      The government just has the worst case of FOMO.
      Yes investing is risky, so now the government is telling us what they consider too risky for us? They need to hold our hands?
      Exactly how much price action do they consider to be “too volatile”?
      Which chart would they use to decide, yearly, weekly, daily, 1 hour, 10 min, 2 min?
      Just in the last three months nvidia has had a gain of around 30 some %, is that considered volatile? Most investment gains shoot for 5-10% a year.

  • @davechow6642
    @davechow6642 2 місяці тому

    hi,how about if i day trade and loss money, is it ok?

  • @jptrainor
    @jptrainor 5 місяців тому

    It's not a new issue regarding TFSA accounts. Even 11 months ago when this video was made. It's been known for a long time.

  • @Vortex_Vishal
    @Vortex_Vishal Рік тому +1

    I have traded $5000 in tfsa by mistake with approx 10-15 trades now I’m not trading in that account
    Is there any legal action or do I have to worry about that

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      This is not a simple yes or no question. Many factors come into play for the CRA when they look at trading inside a TFSA. Frequency, Dollar Value, Profit are all factors that come into consideration. The fact that you are no longer trading inside the TFSA should help but there are no guarantees with CRA.

  • @kofiofosu9051
    @kofiofosu9051 3 місяці тому

    The smartest investors are leaning Canada.

  • @qingheshang532
    @qingheshang532 Рік тому +1

    I have a question, I created my TFSA account in 2002 and daytraded obviously for entire year and lost $50k, if I daytrade again in 2023 and make that 50k back to bring my TFSA account balance back to where it started it in 2022, do I need to pay anything at all? or would they be nasty and make me pay on the way back?

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      Day trading in general isn't allowed in TFSA - as per this court case. If you day trade in 2023 - they may look at your situation and audit you and disallow that gain as exempted status. It could result in the same tax treatment as this particular taxpayer. Sadly CRA doesn't necessarily look at your TFSA when it is in a loss situation, although you can definitely try to use it as an argument.

    • @qingheshang532
      @qingheshang532 Рік тому +1

      @@RealEstateTaxTips thank you~

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому

      @@RealEstateTaxTips the court should not decide the rules , it is the government job.

  • @jonmacist
    @jonmacist 5 місяців тому +1

    thats because your not supose to make that much money only CEOS can they want you to make 3 percent intrest in your TSFA only.

    • @jozefdrozd6576
      @jozefdrozd6576 5 місяців тому

      simply they want sheep buying their bonds paying less then the inflation , not any smart people making money for themselves .

  • @joetuktyyuktuk8635
    @joetuktyyuktuk8635 5 місяців тому

    The reality is... all stock trading is speculative, by the very nature of the stock market. Buy low sell high, but don't buy too low or sell too high... or transact too frequently. Given how little this guy started with, the Government would have been better served to get this guy to handle a measly few hundred million in the CPP fund... we probably all would have been better served by that.

    • @RealEstateTaxTips
      @RealEstateTaxTips  5 місяців тому

      Agree that all stock trading is speculative in nature. Judge also recognized that and they've mentioned in multiple court cases. But again, they looked at a list of factors, and make their conclusion. It ain't black and white unfortunately.

  • @jonmacist
    @jonmacist 5 місяців тому

    It should be any bussiness of the CRA legal gangsters.

  • @bashiraloiyegaruba1703
    @bashiraloiyegaruba1703 Рік тому +2

    I think the real issue is the deliberate lack of clarity by the CRA on duration and frequency that breaks these rules. Because if people had more clarity they would definitely stay away which this court case doesn't clearly resolve. Is a stock I hold for 3weeks or a month too short or long enough? Let the CRA define the duration and the frequency, the number of similar court cases will disappear .
    @RealEstateTaxTips please if you have any info on what the rules on duration please share.
    Thanks

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      It isn't based on the individual stock duration - rather it is the portfolio as a whole.

  • @breakingballswithtony6897
    @breakingballswithtony6897 7 місяців тому

    I have a tfsa through wealthsimple which is purchasing stocks. Does this count as day trading and or using my tfsa to day trade?

    • @RealEstateTaxTips
      @RealEstateTaxTips  6 місяців тому

      It is how you trade, most people have stock investments in TFSA, it is how often you trade, what you do for a living, your intention, etc. that determine the nature of transaction.

  • @ricksaran7694
    @ricksaran7694 5 місяців тому

    Margin account. Do we pay taxes ,how much for day trading

    • @RealEstateTaxTips
      @RealEstateTaxTips  5 місяців тому

      Great question - if you make money in Canada, chances are, you have to pay taxes. How much taxes you need to pay go back to your particular situation, ownership structure and your tax bracket, etc.

  • @hammadsheikh1998
    @hammadsheikh1998 9 місяців тому

    what if you trade in a tfsa but are willing to pay business income tax?

    • @karen406
      @karen406 4 місяці тому

      Why then trade in a TFSA if you want to pay the tax? Makes no sense..

    • @hammadsheikh1998
      @hammadsheikh1998 4 місяці тому

      @@karen406 incase you’re unable to get a margin account

  • @jabroni982
    @jabroni982 Рік тому +1

    I did this and lost a bunch of money, shouldn't that be a write off? 😅

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      Yes for sure - here's some comments on my blog post relating to writing it off
      realestatetaxtips.ca/how-a-tax-payer-got-a-600k-tax-bill-from-tfsa/

    • @jabroni982
      @jabroni982 Рік тому

      @@RealEstateTaxTips oh my god I was joking. I didn't realize I'd be able to write off my losses on a tfsa. Thanks!

    • @rossmacintosh5652
      @rossmacintosh5652 5 місяців тому

      @@jabroni982 You can't write off your loses in a TFSA. There are other accounts where you can but not using a TFSA. Not only did you loose those investments, you forever lost the associated contribution room.

  • @ajitsony
    @ajitsony Рік тому

    No day trading just investing for long term

  • @sidb9540
    @sidb9540 Рік тому

    I'd like to know who made $600K in their TFSA.. I don't care about the TFSA part.. I wanna know his/her strategy :P

    • @RealEstateTaxTips
      @RealEstateTaxTips  Рік тому

      Hahaha, sadly the $600K includes tax and penalty and in his case, a lot of it was taxes and penalty.

  • @Reno-man
    @Reno-man 21 день тому

    As long as your losing money they will leave you alone.
    Make some money and they believe they deserve a cut.
    Very much like the Mob.

  • @Gengingen
    @Gengingen 2 місяці тому

    He must be investigated for insider-information &/or pump/dump schemes which can be relatively easily done with penny-stocks. There is more than that meets the eye. If all above board, pay the damn tax, it should be the least of your worries since you are a genius who can “Milk-markets” like that idiot-savant Navin Sarao, even he was able to “milk” only by engaging in spoofing which is illegal which is why he got caught. 😊