Hi I like to know if any Canadian traders trading futures? I like to know what their tax rate is? I know in US they have this 60/40 rule, but I donít think it applies in Canada(Iím from Toronto). My accountant wouldnít tell me, and when I try to call the government office myself, one person told me that futures are in the same bracket as capital gain tax. If that is the case, thereís no tax advantage trading futures for Canadian users.
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That's correct. Day trading is considered the same as if you were being an autonomous worker or independent contractor. However, if you trade the stock markets within a TFSA (tax free savings account) then it is different. A TFSA is a registered account that allows you to earn capital gains and dividends tax free. Your contributions are not tax-deductible, but you wonít be taxed or penalized for any gains even when you withdraw them. If you let your money sit idle in a low-interest TFSA, your gains will be minimal, meaning thereís not much tax free about it. However, if you pro-actively invest your money and your gains are more significant, then the TFSA is actually working.
You are allowed to contribute up to $5,000 per year to your TFSA. This limit will be adjusted for inflation in future years by $500 increments (subject to government guidelines). Excess contributions are subject to a penalty tax of 1% per month for each month that the excess remains in the plan.
Withdrawals can be made at any time for any purpose (such as purchasing a car, vacation, home renovations) and the money withdrawn is not taxed. In addition, you can recontribute your withdrawals in a future year. Amounts withdrawn are added to your contribution room for the following year and can be carried forward indefinitely, just like your regular unused contribution room.
In the topic of a TFSA for the purpose of active trading, I would double-check how the CRA has treated/intends to treat the tax situation of such cases. In short, make sure the CRA won't exclude active trading gains from the tax exemption. Off the top of my head, I would investigate a few things (sorry for not going deeper into this at the moment, gotta get ready for the open ).
Types of investment vehicles permitted in the TFSA.
The possible existence of any limits in terms of trading frequency and trading "intent". Trading conducted as business activity (self-employed individual in this case). I.E. Have there been prior cases where the CRA has taxed an individual based on the nature of the trading activities conducted through his TFSA.
It would seem no trading/investing on margin is allowed. That would suggest no short positions would be allowed.
Research should be conducted on past cases of TFSA audits done by the CRA with regards to what they would interpret as "abusive" uses of the TFSA, which might relate to aggressive trading techniques, highly frequent trading, and other such activities that could be deemed "abusive to the spirit of the law" by the CRA.
Excerpt from the CRA website on TFSA:
This is a very interesting topic, I have yet to trade my TFSA actively, but it is definitely worth investigating.
I think what the govt guy told you is correct - futures capital gains are the same as other capital gains.
Capital losses are not offset against other income but are carried forward to offset future capital gains.
If trading stocks or futures is your primary source of income and you classify yourself as a professional trader - its your business - then I believe you are taxed at your normal (full) personal rate. (same as any self-employed income).
TSFA does not seem to allow futures as a qualified investment so as your question is about futures I don't think it applies.
(If this is not correct someone please let me know. tks)
I asked IB
- there has been some changes to IB recently to make IB Canada more independent of IB usa rules - for example I believe the $25K minimum for day trading stocks no longer applies to Canadian accounts
but in response to TFSA
IB wrote me - IB Canada only support trading in a Cash or Margin account for trading EFT, Futures, Futures Options and more, without the Tax Free saving features
I did hear that Flahertey hopes to submit a bill by 2014 to unite all provinces under one government body for Security Trading. This should help a lot with providing Canadians with more options for discount Futures brokers willing to accept Canadian clients. right now the only way for B.C. clients to get into a discount Futures brokerage is to be grand fathered in
Are U doing that successfully?
I talked briefly to a tax accountant in Vernon, B.C. and he warned about getting double taxed on earnings from both USA and Canada. But I must admit I haven't explored this LLC thing thoroughly.