TFSA and “Day Trading

TFSA Concerns for the Investors
There are many people who are concerned as to what their TFSA “limit” is, and rightly so. Any overcontribution results in a “penalty” equal to 1% per month on the overcontributed amount. You should learn how to pull that overcontribution out pronto, or make sure you are making more than 12% / year on your investment income.

Now, investment income isn’t what you think it is. It’s not the result of you buying a stock, and selling it, and recognizing a gain. Especially when you are plugged into your computer and love “day trading”. This occurs when you are market savvy, and know when to buy, when to hold, and when to sell, and do that in order to make your investment grow.
Today, an article in the Financial Post regarding a “day trader”, indicated his contribution to that program was made early when the TFSA accounts were a reality, and was about $15,000. He was a stock broker, and had the knowledge of when to buy penny stocks and when to get out. After a short period of time, his $15,000 became closer to $600,000, and of course CRA comes dancing by with their hand out. Day trading is considered having a “business”.
A business is subject to income reporting, and it is not sheltered within a TFSA.
This person was reassessed about 4 years tax returns, and of course, his investments wouldn’t even be considered of a capital nature. They would be considered his “inventory”. He was buying inventory, and selling it at a profit. There is no capital gains exemption when you sell inventory. There are sales, cost of sales, and expenses. The bottom line is subject to CRA and the Taxation laws we have to understand, or at least abide.

So, the short of it is, when you are trading stocks within a TFSA, keep in mind, it is a business, and as such, is subject to income tax reporting.

Not everyone who buys stocks really know what they are doing. In some cases, you will loose. I believe the flip side of this situation should prevail, and business losses, providing you have a “reasonable expectation of profit”, should be held to offset any future business profits. I’d tread softly here, because at this point, it’s not about having a non capital loss to carry forward, it’s about investing, and loosing your money.

Jack