Is it considered to be day trading to repeatedly sell and buy shares of a single company in a registered account if I hold other securities for the long term in this account?
—Raymond Forget
THE day tradingor short-term speculation, involves buying and selling securities during the same day with the intention of making a quick profit.
The government perceives income generated from short-term speculation activity as business income, underlines independent financial planner André Lacasse.
“It is therefore no longer savings, but a commercial activity in the eyes of the tax authorities,” he says. It becomes, for example, fully taxable income in a TFSA (tax-free savings account), he says.
“What remains unclear is knowing from what precise moment the government considers that this is an activity of day trading », says André Lacasse.
The question of whether a taxpayer is carrying on a business is one that can only be answered after examining the specific circumstances of a given case, says Canada Revenue Agency spokesperson Sylvie Branch.
It specifies that the federal agency can revoke the registration of a registered education savings plan (RESP), for example, if this account is used to operate a business.
” There Income Tax Act provides for tax consequences for any registered plan (RRSP, FEER, RDSP, etc.) used to operate a business,” she specifies.
Courts have developed criteria to determine whether securities transactions constitute the carrying on of a business.
The documentation provided by Sylvie Branch reveals that the factors taken into account to determine whether, in the ordinary course of business, the taxpayer operates a business include:
- Repeat similar transactions – a history of intensive buying and selling of securities.
- Holding period – securities are usually held for a short period of time.
- Knowledge of securities markets – the taxpayer has knowledge or experience of these markets.
- Securities transactions are part of the taxpayer’s regular activities.
- Time spent – the taxpayer spends a significant portion of his or her time studying the securities market and researching possible purchases.
- Financing – securities are primarily purchased on margin or financed with another type of debt.
- Advertising – the taxpayer has announced or otherwise made known that he or she is prepared to purchase securities.
- In the case of stocks, their nature – they are usually speculative in nature or do not produce dividends.
Although none of these factors is sufficient, in itself, to determine whether a taxpayer’s activities are those of a business, a combination of these factors can, indicates Sylvie Branch.
It invites taxpayers who wish to obtain greater certainty regarding the tax consequences of a series of transactions or anticipated transactions to contact the Canada Revenue Agency.
“There is no charge for technical interpretation,” she says.
Visit the CRA webpage on advance tax rulings and technical interpretations
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