Why Day Trading in Tax-Free Savings Account (TFSA) Is NOT Allowed - Court Case Explained
Рет қаралды 11,041
Күн бұрынAre you a day trader looking to maximize your tax-free savings? Did you know that Day Trading in your Tax-Free Savings Account (TFSA) might not be as tax-free as you thought?
Many investors utilize TFSA to build tax-free assets. However, a recent court case has raised questions about whether a TFSA trust remains exempt from tax if it carries on a business of trading qualified investments. While the Appellant argued it does, the Crown said it does not, resulting in a $600k tax bill for the taxpayer.
In this video, we'll dive deeper into this court case, explaining the situation and providing valuable insights. We'll define day trading and examine the eight criteria CRA uses to evaluate trading behaviour in TFSA accounts. Additionally, we'll compare day trading in TFSA and RRSP accounts so that you can make informed decisions about your investments.
Key Moments In This Video
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00:00 - What is a Tax-Free Saving account TFSA?
02:40 - Stock investing in TFSA account
3:06 - Details of the court case
4:35 - 8 criteria CRA uses to evaluate trading behaviour in TFSA accounts
8:42 - Diving deeper into the court case
11:10 - Day trading in RRSP vs. TFSA
12:00 - Verdict of the court case
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If you need to talk to someone on my team, email us at admin@cccpa.ca.
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Real estate Tax planning is a personalized decision and will depend on your situation, priorities, and risk tolerance. Consult with your legal and tax advisors to ensure you get the best personalized advice.
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#daytrading #TFSA #TaxFreeSavingsAccount #CRA #RRSP #taxfree #incometaxact #stockinvesting #stockinvestor #courtcase #taxsaving #realestatetaxtips #taxsavings #realestatetips #Cherrychan
@RealEstateTaxTips Жыл бұрын
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 3 ай бұрын
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 Ай бұрын
yeah they hate people who want to have a better life.
@toluca56 3 ай бұрын
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 3 ай бұрын
Id like to know as well
@supercompooper 3 ай бұрын
They arbitrarily decide. They pretend to know it if they see it and judge if they can get away with it
@jozefdrozd6576 3 ай бұрын
seams there are no rules , they make the rules as they please to take your money .
@jimwhite1756 Жыл бұрын
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 Жыл бұрын
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 Жыл бұрын
That's a very good point. Government always gets their cake & eat it too....we just do all the baking!
@jozefdrozd6576 3 ай бұрын
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 !
@jimthornton6774 Жыл бұрын
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 Жыл бұрын
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 9 ай бұрын
@@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 3 ай бұрын
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 2 ай бұрын
@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 3 ай бұрын
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.
@skullwise Жыл бұрын
Thanks a lot for this amazing video.
@Vancouver_Island_Guy 8 ай бұрын
So nice to have this thing called government controlling every aspect of our lives isn't it. True North strong and free 😂😂😂
@telegramtrader 8 ай бұрын
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.
@yandhi4202 7 ай бұрын
This was interesting thank you for the video!
@RealEstateTaxTips 7 ай бұрын
Glad you enjoyed it!
@chineduogbonna6947 Жыл бұрын
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 Жыл бұрын
Yes the Brokers Overnight Financing Charges are deductible against the income earned
@sidb9540 11 ай бұрын
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 11 ай бұрын
@@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.
@milo_ipkissqc8312 29 күн бұрын
@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?
@shivambansal5203 Ай бұрын
Can we file day trading loss as a business loss occurred in TFSA against other income?
@tonny9168 2 ай бұрын
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.
@toddm599 3 ай бұрын
Great video, thanks. What is the tax if its determined you day traded?
@RealEstateTaxTips 3 ай бұрын
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
@karen406 2 ай бұрын
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.
@davechow6642 22 күн бұрын
hi,how about if i day trade and loss money, is it ok?
@RuelMorales 4 ай бұрын
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 3 ай бұрын
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.
@breakingballswithtony6897 5 ай бұрын
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 4 ай бұрын
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.
@ripe_avocados 3 ай бұрын
Can you please make a video on taxes for Canadian day traders?
@RealEstateTaxTips 3 ай бұрын
Sounds like a good idea. I will add it to our list of potential topic.
@conspal3718 9 ай бұрын
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 9 ай бұрын
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 3 ай бұрын
i dont think so as long as he doesnt sell. buying is not taxeble event@@RealEstateTaxTips
@jozefdrozd6576 3 ай бұрын
@@RealEstateTaxTips if yes then it is a robbery in day light . We are taxed to death and yet people keep supporting this .
@level70420 3 ай бұрын
This is really confusing. The rules are too vague. If you invest in an index etf and sell during a market downturn to avoid major losses and reenter your position later in the year are they going to consider that trading when all you did was protect yourself? That isn’t day trading and sometimes markets can go up and down 20-30% in a year..
@RealEstateTaxTips 3 ай бұрын
100%. They also look at your long-term behaviour to make the decision, your intention, etc. It is not black and white unfortunately.
@johnklutz1403 3 ай бұрын
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 3 ай бұрын
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 3 ай бұрын
@@peterjurt1141 thank you so much for your response!
@rossmacintosh5652 2 ай бұрын
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.
@qingheshang532 Жыл бұрын
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 Жыл бұрын
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 Жыл бұрын
@@RealEstateTaxTips thank you~
@jozefdrozd6576 3 ай бұрын
@@RealEstateTaxTips the court should not decide the rules , it is the government job.
@Vortex_Vishal Жыл бұрын
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 Жыл бұрын
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.
@kevincameron192 5 ай бұрын
I've had advisors with two big banks disagree with this ruling.
@RealEstateTaxTips 5 ай бұрын
We can disagree with this all day long, the judge ultimately decides based on the rule.
@ricksaran7694 3 ай бұрын
Margin account. Do we pay taxes ,how much for day trading
@RealEstateTaxTips 3 ай бұрын
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.
@xkrimzonxrsps 7 ай бұрын
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 Ай бұрын
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 18 күн бұрын
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.
@hammadsheikh1998 7 ай бұрын
what if you trade in a tfsa but are willing to pay business income tax?
@karen406 2 ай бұрын
Why then trade in a TFSA if you want to pay the tax? Makes no sense..
@hammadsheikh1998 2 ай бұрын
@@karen406 incase you’re unable to get a margin account
@kofiofosu9051 27 күн бұрын
The smartest investors are leaning Canada.
@RealEstateTaxTips 25 күн бұрын
Sad but true...
@patientzero291 3 ай бұрын
There's other accounts for day trading. TFSA is for long-term prosperity like other savings account.
@RealEstateTaxTips 3 ай бұрын
that's what the government's original intention
@JD_-_ 3 ай бұрын
The days of buying stocks and forget about it are gone.
@jptrainor 3 ай бұрын
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.
@joetuktyyuktuk8635 3 ай бұрын
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 3 ай бұрын
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 3 ай бұрын
It should be any bussiness of the CRA legal gangsters.
@bashiraloiyegaruba1703 Жыл бұрын
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 Жыл бұрын
It isn't based on the individual stock duration - rather it is the portfolio as a whole.
@jonmacist 3 ай бұрын
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 3 ай бұрын
simply they want sheep buying their bonds paying less then the inflation , not any smart people making money for themselves .
@sidb9540 11 ай бұрын
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 11 ай бұрын
Hahaha, sadly the $600K includes tax and penalty and in his case, a lot of it was taxes and penalty.
@jabroni982 Жыл бұрын
I did this and lost a bunch of money, shouldn't that be a write off? 😅
@RealEstateTaxTips Жыл бұрын
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 Жыл бұрын
@@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 2 ай бұрын
@@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 Жыл бұрын
No day trading just investing for long term
@RealEstateTaxTips Жыл бұрын
Yes - but this taxpayer put up a good fight
@kovalenkoihor4325 Ай бұрын
That is the question. What is long term? 1 year?
@Gengingen 5 күн бұрын
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. 😊
@ttrytten 3 күн бұрын
I just bought Apple and held, made more money than this guy working everyday day-trading. Passive investing...oh yeah!
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