Stop using your TFSA to frequently trade stocks — the CRA may see it as taxable business income
Jamie Golombek: You may be surprised to learn that your trading activity could constitute a business, even if it’s done inside a tax-free savings account
Whether you invest in stocks, bonds or mutual funds, you generally expect that any profits realized from the sale of those securities will be taxed as capital gains at 50 per cent of your marginal tax rate rather than being 100 per cent taxable as business income. But, depending on your particular circumstances, you may be surprised to learn that your trading activity could constitute a business, even if it’s done inside a tax-free savings account.
Under the tax rules, if a TFSA carries on a business then it must pay income tax on its business income. This has been a focus of recent audit and reassessment activities where the Canada Revenue Agency has been targeting taxpayers who actively traded securities in their TFSA.
Last week, at the annual conference of the Society of Trust and Estate Practitioners held in Toronto, the CRA was asked to provide an update on the result of its audits and whether it has any plans to educate the public on what the acceptable limits are on securities trading to prevent a TFSA account from being considered to be “carrying on a business.”
The CRA said that “millions of additional taxes have been recovered as a result of audits of TFSAs,” and referred to a recently-released Income Tax Folio which indicates that “the determination as to whether a particular taxpayer carries on a particular business is a question of fact that can only be determined following a review of the taxpayer’s particular circumstances.”