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The CRA is Going After Day Traders Who Use Their TFSAs

FP | Jamie Golombek | Feb 16, 2023

Unsplash m trading - The CRA is Going After Day Traders Who Use Their TFSAsUnlike an RRSP, a TFSA is not exempt from paying tax on business income from day trading

  • In the past few years, active trading in a TFSA has been a focus area for the Canada Revenue Agency’s audit and reassessment activities, and the agency has been targeting taxpayers who actively trade securities in their TFSAs.
    • A tax case decided earlier this month involved a taxpayer who grew his TFSA to more than $617,000 from $15,000 in three years by actively trading penny stocks. The taxpayer, a Vancouver-based investment adviser, opened his first TFSA at the very beginning of the program’s launch on Jan. 2, 2009. It was a self-directed TFSA, and all securities purchased and sold by the TFSA were “qualified investments,” as stipulated by the Income Tax Act.

See:  Do employees pay less taxes by exercising stock options pre-IPO?

  • The CRA considers a variety of factors when determining whether a taxpayer’s gains from securities constitute carrying on a business, including the frequency of the transactions, the duration of the holdings, the intention to acquire securities for resale at a profit, the nature and quantity of the securities, and the time spent on the activity.
  • This rule is in direct contrast to the rules governing active trading in a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF). The Income Tax Act has a specific rule that exempts both RRSPs and RRIFs from paying tax on business income when that income is derived from investing in qualified investments.

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