MicRitz13 [OP]
Newbie
Oct 6, 2020
1 posts
1 upvote

Oct 7th, 2020 4:39 pm

Hi, could you please let me know if it is a good idea to day trade in an RRSP and a TFSA account or if there are any tax implication or any other issues?

Oct 11th, 2020 4:42 pm
lmcjipo
Deal Addict
Sep 14, 2012
1800 posts
1283 upvotes
Montreal, QC

Oct 11th, 2020 4:42 pm

MicRitz13 wrote: Hi, could you please let me know if it is a good idea to day trade in an RRSP and a TFSA account or if there are any tax implication or any other issues?

Day trading with a TFSA account isnt recommended (and I would suspect the same is true for an RSP) since the CRA can come after you for the gains as they consider day trading to be a business income and a TFSA is meant for individual investments.

More information can be found on: https://www.moneysense.ca/save/investin ... -unlikely/ and https://www.advisor.ca/tax/tax-news/cli ... r-the-tax/

Two informative videos on YouTube on the topic can be found *HERE* and *HERE*

Oct 11th, 2020 4:53 pm
tradinghumble
Sr. Member
Apr 14, 2006
837 posts
517 upvotes
St Johns

Oct 11th, 2020 4:53 pm

I’ve been doing for more than 15 years it’s never been an issue, what I do with my RRSP or TFSA is none of the CRA business. They will only bother you if you over contribute or withdraw.

Oct 11th, 2020 5:05 pm
lmcjipo
Deal Addict
Sep 14, 2012
1800 posts
1283 upvotes
Montreal, QC

Oct 11th, 2020 5:05 pm

tradinghumble wrote: I’ve been doing for more than 15 years it’s never been an issue, what I do with my RRSP or TFSA is none of the CRA business. They will only bother you if you over contribute or withdraw.

I like your attitude but it is the CRAs business since they are giving the benefit of saying what is tax free and what isnt. For example, in the past, people used to not be able to put more than 10% of their investments into foreign income (if I remember correctly) in an RSP... I guess your attitude back then was also that you do/invest in your RSP wasnt the CRAs business.

Oct 11th, 2020 5:47 pm
faken
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User
Sep 21, 2007
8502 posts
5863 upvotes
Winnipeg

Oct 11th, 2020 5:47 pm

day trade in a cash account.

An essential aspect of creativity is not being afraid to fail. -- Edward Land

Oct 11th, 2020 6:31 pm
yvrbanker
Sr. Member
May 2, 2019
537 posts
642 upvotes
Vancouver

Oct 11th, 2020 6:31 pm

tradinghumble wrote: what I do with my RRSP or TFSA is none of the CRA business

Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA wont have a problem coming after traders later.

Heres from the horses mouth on running a business from TFSA:
If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business.

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments.

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you dont need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.

Oct 11th, 2020 6:50 pm
lmcjipo
Deal Addict
Sep 14, 2012
1800 posts
1283 upvotes
Montreal, QC

Oct 11th, 2020 6:50 pm

yvrbanker wrote: Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA wont have a problem coming after traders later.

Heres from the horses mouth on running a business from TFSA:
If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business.

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments.

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you dont need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.

I wasnt sure about an RSP but now that I think of it, what you posted would make sense that day trading would be allowed in it since it is in the governments (CRAs) interest to allow it.

Under current rules, if I had $100,000.00 in my TFSA, the government would see none of it in terms of getting any taxes from it. In an RSP, if I had $100,000.00, the government would get their share of it since an RSP is tax deferred meaning people will pay tax on it whereas a TFSA is tax free meaning not paying any tax on it. It is in their interest for the RSP to be worth as much as possible for clawbacks and taxes.

That being stated, I wouldnt do day trading in my RSP account since I dont have the time and my philosophy on my RSP is long term growth/appreciation.

Before considering day trading, one should speak with a CPA or a tax lawyer in my opinion to understand what one is getting into and how to take advantage of the tax laws.

Oct 11th, 2020 8:48 pm
CDNGreenTrader
Deal Addict
Sep 27, 2020
1045 posts
2882 upvotes

Oct 11th, 2020 8:48 pm

yvrbanker wrote: Wrong. For one, the taxpayer must limit the investments in RRSP or TFSA to qualified investments, which limits day trading. No trades on margin. No shorting, etc.

This topic came up many times on the forum.

Day trading in TFSA makes no sense. CRA can tax the business income if the trader makes money, but no credit if the trader loses money. Day trading leaves enough paper trail, so CRA wont have a problem coming after traders later.

Heres from the horses mouth on running a business from TFSA:
If a TFSA holds a non-qualified investment or carries on a business, the TFSA trust is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business.

On the other hand, RRSP is totally fine for day trading. I used to refer to Prochuk vs the Queen case as justification. CRA recognizes this too in the tax folio for registered investments:
1.89. ... This means, for example, that if an RRSP or RRIF were to engage in the business of day trading of various securities, it would not be taxable on the income derived from that business provided that the trading activities were limited to the buying and selling of qualified investments.

I recommend day trading in a demo account until you have a record of consistent profitability (profit after commissions over a few hundred trades). For real money trades, RRSP is very convenient in the beginning as you dont need to keep tax records for CRA. (Also, your losses are before tax.) Actually profitable traders can make more money in non-registered margin accounts (or incorporate), as the extra earning potential gives more than taxes take away.

Excellent summary.

I would just add that in addition to RRSP, you can day trade in any registered vehicle that is tax deferred.

Oct 11th, 2020 8:52 pm
CDNGreenTrader
Deal Addict
Sep 27, 2020
1045 posts
2882 upvotes

Oct 11th, 2020 8:52 pm

lmcjipo wrote: Before considering day trading, one should speak with a CPA or a tax lawyer in my opinion to understand what one is getting into and how to take advantage of the tax laws.

This.

Day trading is like a business so you get certain perks (e.g. writing off your computer, desk, etc.) but you do not get to claim the income as capital gains.

Oct 12th, 2020 2:48 am
tradinghumble
Sr. Member
Apr 14, 2006
837 posts
517 upvotes
St Johns

Oct 12th, 2020 2:48 am

lmcjipo wrote: I like your attitude but it is the CRAs business since they are giving the benefit of saying what is tax free and what isnt. For example, in the past, people used to not be able to put more than 10% of their investments into foreign income (if I remember correctly) in an RSP... I guess your attitude back then was also that you do/invest in your RSP wasnt the CRAs business.

when the max 10% foreign investments was in effect I was respecting it, right now it is not and it hasnt been for a while.

Theres no legal rule that prevents one from day trading in a RRSP account, as I said Ive been doing large sizes for the past 15+ years across multiple brokers TDW, BMOIL. I do at least 55 trades/quarter on my RRSP.

Oct 12th, 2020 7:39 am
lmcjipo
Deal Addict
Sep 14, 2012
1800 posts
1283 upvotes
Montreal, QC

Oct 12th, 2020 7:39 am

tradinghumble wrote: when the max 10% foreign investments was in effect I was respecting it, right now it is not and it hasnt been for a while.

Theres no legal rule that prevents one from day trading in a RRSP account, as I said Ive been doing large sizes for the past 15+ years across multiple brokers TDW, BMOIL. I do at least 55 trades/quarter on my RRSP.

I was referring to your comment on what I do with my RRSP or TFSA is none of the CRA business which indicates that you can do whatever YOU want and it doesnt matter what the CRA stipulates for either account as long as you dont exceed your contribution limits. The CRA (and Canadian government) stipulates what the accounts can be used for.

The CRA stipulates what the accounts can be used for and while an RSP might not have issues with day trading, a TFSA is different. The CRA could probably care less if an RSP had one million dollars in it but would care if a TFSA had one million dollars in it even if the plan holder never overcontributed in either plan since one account is tax deferred and the other account is tax exempt. Using the one million dollar value as an arbitrary value to illustrate a point.

Oct 12th, 2020 10:45 am
CDNGreenTrader
Deal Addict
Sep 27, 2020
1045 posts
2882 upvotes

Oct 12th, 2020 10:45 am

What will be interesting is how CRA handles all of this for 2020 filings.

There was a massive increase in day trading volumes this year during the pandemic and it has continued. There are likely many who dont understand the tax rules when it comes to TFSAs, capital gains, etc.

Oct 12th, 2020 11:00 am
tradinghumble
Sr. Member
Apr 14, 2006
837 posts
517 upvotes
St Johns

Oct 12th, 2020 11:00 am

lmcjipo wrote: I was referring to your comment on what I do with my RRSP or TFSA is none of the CRA business which indicates that you can do whatever YOU want and it doesnt matter what the CRA stipulates for either account as long as you dont exceed your contribution limits. The CRA (and Canadian government) stipulates what the accounts can be used for.

The CRA stipulates what the accounts can be used for and while an RSP might not have issues with day trading, a TFSA is different. The CRA could probably care less if an RSP had one million dollars in it but would care if a TFSA had one million dollars in it even if the plan holder never overcontributed in either plan since one account is tax deferred and the other account is tax exempt. Using the one million dollar value as an arbitrary value to illustrate a point.

Agreed, I never day traded TFSA. Thx for the info

Jan 6th, 2021 8:30 pm
jeffyjaixx
Deal Fanatic
User
Feb 28, 2006
7262 posts
706 upvotes
Richmond Hill

Jan 6th, 2021 8:30 pm

The real question is what is considered day trading in the TFSA. Say, I buy a ticker one day and then sell the next trading day. Is that considered daytrading?

Jan 7th, 2021 12:24 am
thetipster
Deal Addict
Dec 13, 2010
2125 posts
1011 upvotes
ON

Jan 7th, 2021 12:24 am

jeffyjaixx wrote: The real question is what is considered day trading in the TFSA. Say, I buy a ticker one day and then sell the next trading day. Is that considered daytrading?

Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.

Jan 7th, 2021 5:46 am
admiralackbar
Deal Addict
Dec 4, 2011
1845 posts
1439 upvotes
Montréal

Jan 7th, 2021 5:46 am

thetipster wrote: Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.

There are way too many variables for them to issue precise guidelines on what the threshold is. None of the frequencies you mention are even close to day trading however.

The closer your trading is to a full time job and a high number of intraday transactions, no long term positions, etc. the closer you are to income vs. capital gains. Gains only come in when you are a statistical anomaly for them, then they will look at you. 99%+ of peoples TFSA are not even worth a look for them.

Always best to talk to an accountant on these matters obviously and dont be the low-hanging fruit for them.

Last edited by admiralackbar on Jan 7th, 2021 11:44 am, edited 1 time in total.

Jan 7th, 2021 6:19 am
VESTEGAARD
Sr. Member
User
Dec 28, 2010
640 posts
288 upvotes

Jan 7th, 2021 6:19 am

thetipster wrote: Exactly, where is the line? They say running a business... where is the line between someone trading in their spare time and running a business?
10 trades a month? 20? 60?
Or is it about how much profit?
Again, no lines have been drawn. They leave it open for interpretation.

Thank you for this reply. There are a lot of people here who seem to know when the CRA will do what but how do you run a business in a TFSA? Exactly, you cant.
I day traded in a TFSA for 2 years and the CRA never touched my account.

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Jan 7th, 2021 8:39 am
trixR4kids
Deal Fanatic
User
Jul 15, 2005
7775 posts
1491 upvotes
Toronto

Jan 7th, 2021 8:39 am

VESTEGAARD wrote: Thank you for this reply. There are a lot of people here who seem to know when the CRA will do what but how do you run a business in a TFSA? Exactly, you cant.
I day traded in a TFSA for 2 years and the CRA never touched my account.

Dont forget that the CRA wont necessarily go after you a year after day trading. Possibly the gains your making havent made it worthwhile for them to go after you, or they could be building a case against you with years worth of data.

Id say try and do a mix of both day trading & some long term holds.

Jan 7th, 2021 11:46 am
zcypher
Member
Jan 4, 2017
366 posts
272 upvotes

Jan 7th, 2021 11:46 am

The main benefit of TFSA & RRSP accounts are to leverage long term compounding growth without paying taxes on the gains (ie, over decades - compounding doesnt really work its magic over just a few months or short years). Completely tax-free in the case of the TFSA, and only tax-deferred for RRSP.

Before going any further, lets clarify what is meant by day trading and investing, which are two distinct, separate things.

Investing refers to purchasing an asset with the goal of acquiring capital appreciation and/or income from said asset, there are valid short and long term investing strategies of all kinds. They can take the form of investing directly in a business, buying mutual funds/index funds/ETFs/REITs/stocks/bonds, real estate, and obviously much more. Long term in investing is typically thought of as decades. A year or two is not a long time to invest. There are valid active and passive investing strategies, though communities like these tend to heavily favor the passive strategies (with good reason).

Day trading refers to the practice of actively buying/selling stocks/options/currencies/whatever to profit from the volatility/price action throughout the day. If you are buying to sell for a profit the next day, week, month - that is not day trading (its commonly referred to as swing trading). But lets take it a step further, if youre just buying stuff hoping itll go up, thats not day trading! Thats just random speculation / gambling. In order to do actual day trading, you need to learn a specific, legitimate trading strategy and successfully execute it. That takes as much time and effort to become successful at than anything else, hence the statistics on day trading making it sound impossible when it isnt, really - its just that people have woefully incorrect expectations as to what it entails to consistently succeed at day trading over time. ~97% of people are unwilling to commit that (understandably).

So in summary, please do not gamble in your TFSA/RRSP accounts. Theyre perfect for investing, so use them for that. If youve maxed them out already or you just want to get into actual day trading, use the appropriate account for that, which would be a cash/margin account with the likes of Interactive Brokers, Virtual Brokers, Questrade or other similar brokerage platform. Thats what those accounts are for, and you will benefit from the features they offer which registered accounts do not.

If what you actually want to do is swing trading, its likely totally fine from a CRA perspective in your registered accounts - but again, why would you use up your contribution room on speculative trades instead of investing? IMO if you have already committed to a sound long-term investing strategy with ~90%+ of your portfolio and want to allocate a small portion to the riskier stuff - that would be all good.

Hope this helps!

Jan 7th, 2021 12:04 pm
dec12
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May 6, 2010
3021 posts
380 upvotes
Markham

Jan 7th, 2021 12:04 pm

I do a lot of covered call trading. Most of it would be closed out in a month. Would that make it a daytrading? I averaged about 10 trades per day, thank you Covid, through 4 accounts.

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