Taxing Day Traders TFSA’s

by Dean Paley on July 16, 2015

If the CRA can latch on to something, they will.tax day

For most of us, the investment income we earn inside our TFSA’s are 100% tax free. However, if you are day trading inside your TFSA, the Canada Revenue Agency may come knocking.

You see, under the Income Tax Act, there is a subtle but highly important distinction between a business and an investor. This distinction is highly important because the TFSA exempts the investor’s income from tax but not a business.

Without boring you with the details suffice to say that a highly active investor placing many trades per day may be considered to be operating a business. The CRA could come knocking and indicate that the trades constitute running a business and apply both income tax as well as the penalty tax on the TFSA itself.

If you are making frequent trades in the TFSA or even your RRSP/RRIF, be cautious that the CRA may consider you to be running a business through your registered accounts.

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