Non-Registered Account - Day Trading - Taxation Inquiry

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
Post Reply
dollabillz
Newcomer
Newcomer
Posts: 2
Joined: 16 Aug 2016 13:17

Non-Registered Account - Day Trading - Taxation Inquiry

Post by dollabillz »

Hi all,

I have recently incorporated a Canadian corporation and i plan on building equity (atleast 100k USD) by day trading the US market (mostly ETF's) before i engage in servicing my own clients/customers (in the near future).
I have a very conservative trading plan and i am planning to start nice and slow to gain confidence, discipline and develop strategies. I am considering using QuesTrade as my broker (Non-registered account) as the free buying ETF option is very appealing to me.

I am aware that day trading would result in BUSINESS INCOME/LOSS liable for 100% corporate taxation instead of CAPITAL GAINS/LOSSES. I would like to inquire if there will be any other taxation involved.

Also, would appreciate any wisdom/guidance/pointers/tips that you can share in regards to my plan. Much appreciated.
MarketLost
Contributor
Contributor
Posts: 62
Joined: 16 Jul 2016 12:30

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by MarketLost »

dollabillz wrote:Hi all,

I have recently incorporated a Canadian corporation and i plan on building equity (atleast 100k USD) by day trading the US market (mostly ETF's) before i engage in servicing my own clients/customers (in the near future).
I have a very conservative trading plan and i am planning to start nice and slow to gain confidence, discipline and develop strategies. I am considering using QuesTrade as my broker (Non-registered account) as the free buying ETF option is very appealing to me.

I am aware that day trading would result in BUSINESS INCOME/LOSS liable for 100% corporate taxation instead of CAPITAL GAINS/LOSSES. I would like to inquire if there will be any other taxation involved.

Also, would appreciate any wisdom/guidance/pointers/tips that you can share in regards to my plan. Much appreciated.
Can you let me know what you mean by "other taxation"? Unless you are receiving dividends from Canadian companies, which give you can claim a tax credit for when it flows through to you personally, I'm not sure what you're asking?

As for your plan, it appears to be contradictory. In one sentence you say you're planning on day trading, but in the next sentence you say you have a conservative trading plan. Day trading is anything, but conservative as you are opening and closing multiple positions in one session. Day trading also doesn't concern itself with what the underlying business is. Conservative would be buying index, balanced, or bond funds. You could even buy a few dividend aristocrats, and that would still be considered rather conservative. However, the idea is that you're buying something you just put away for the long-term and don't look at until years down the road.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by AltaRed »

I suspect the OP means: 1) putting very little skin into the game to start with with a less cataclysmic outcome if/when the strategy fails, or 2) frequent trading based on technicals which often makes the technicians featured on BNN's Market Call look like idiots much of the time.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
MarketLost
Contributor
Contributor
Posts: 62
Joined: 16 Jul 2016 12:30

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by MarketLost »

AtlaRed, I think you're probably correct. Perhaps, the OP should start with $110K so he can be sure to have $100K when he stops out. :D

I actually haven't seen the BNN technical analysis that much, but I've seen a lot of it elsewhere, and if there are any good technicians, they don't seem to show up on CNBC, or any other media site. A good example, there was one technician that claimed he was going to triple his money on a call spread on TJX when it went to $85 last week...of course it actually fell below $80, so I guess that didn't work out so well.
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by newguy »

Why a Corp? For liability or to pay highest marginal rates?

If you have a loss can it be deducted from regular income, ie. transfer loss from corp to personal taxes?

Search on canlii for cases involving how to declare loss on income account. Sometimes it's disallowed but one guy with a good business plan (except for the losing money part) had his losses allowed. This wasn't in a corp.

Since you're almost certainly going to lose money, it's best to have a plan for using those losses.

I've stated before that all the court cases are people trying to claim losses from income and not cap gains but there was a recent ruling the other way.

https://releve.canlii.org/en/ca/tcc/doc ... ultIndex=5
According to the “Trading Summaries” produced as exhibits, the Appellant engaged in more than 90 transactions in 2003, 69 transactions in 2004, 136 transactions in 2005, 154 transactions in 2006 and 168 transactions in 2007. In total the Appellant engaged in excess of 600 transactions over the 5 year period
....
The “Trading Summaries” submitted disclosed that the Appellant held most of the securities for a short time with some being purchased and sold within a few days and a few being purchased and sold the same day.
....
Most of the securities held by the Appellant were blue chip stocks. However, very few of these stocks were held for any length of time. During the period he purchased more than 226,000 shares and he sold more than 216,000 shares.
So according to this judge, we're all day traders :lol: , ok maybe just some of us. Note that this guy didn't file his taxes properly and came to the attention of the enemy.

newguy
dollabillz
Newcomer
Newcomer
Posts: 2
Joined: 16 Aug 2016 13:17

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by dollabillz »

Thank you all for the reply.

To clear the confusion and my intention of using a corporation to day trade, i wanted to show business activity and the ability to expense continuing education courses that i will be taking to further my financial education, subscriptopms and other things such as phone bills etc. I also wanted to draw some funds monthly for myself.

What i meant by conservative is that my daily trading goal is to scalp a $100-200 profit on a daily basis which i have been doing so for the past couple of months and i am content with this discipline. I am not investing for long term and not worried about dividends. I usually trade one or two ETF's and achieve my target with 2 or 3 trades/day.

I have spoke with several CPA's and everyone has given different answers which has left me more confused. Some say that CRA will object to this method because it allows investors to pay less taxes then when doing under person non-registered account.
I would really appreciate if someone can explain me in the following context:

Assumption: 2016 total capital gains: $20,000 USD

Individual Non-Registered Account:
Tax % to pay: (to my knowledge: 50% of capital gains ($10k) taxed at the marginal rate)

Corporate Non-Registered Account:
Tax % to pay: (to my knowledge: 15% withholding tax + corporate tax rate)
User avatar
DavidR
Veteran Contributor
Veteran Contributor
Posts: 1937
Joined: 30 Oct 2005 08:33
Location: Toronto

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by DavidR »

dollabillz wrote:...To clear the confusion and my intention of using a corporation to day trade, i wanted to show business activity and the ability to expense continuing education courses that i will be taking to further my financial education, subscriptopms and other things such as phone bills etc. I also wanted to draw some funds monthly for myself.

I would really appreciate if someone can explain me in the following context:

Assumption: 2016 total capital gains: $20,000 USD

Individual Non-Registered Account:
Tax % to pay: (to my knowledge: 50% of capital gains ($10k) taxed at the marginal rate)

Corporate Non-Registered Account:
Tax % to pay: (to my knowledge: 15% withholding tax + corporate tax rate)
As a day-trader carrying on a business, your profits will be taxed as business income, not as capital gains.
$20,000 USD is approx $26,000 CAD (you will have to convert each year), and then you deduct your business expenses.

Corporate Non-Registered Acct:
There is no withholding tax on trading gains for a Canadian resident trading US stocks. Or on capital gains for that matter.
The 'small business' combined tax rate (Federal + provincial) in most provinces is around 15%
OhGreatGuru
Veteran Contributor
Veteran Contributor
Posts: 1361
Joined: 27 Mar 2010 16:01

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by OhGreatGuru »

dollabillz wrote:... i wanted to show business activity and the ability to expense continuing education courses that i will be taking to further my financial education, subscriptions and other things such as phone bills etc. I also wanted to draw some funds monthly for myself.
Presumably you are aware that in order to claim expenses:
a) they must be related to the operation of the business; and,
b) your business must have a reasonable expectation of profit, otherwise you are just trying to claim personal expenses under the guise of doing business.

It seems to me, until you have clients, you don't really have a business - you're just investing for personal gain. Trying to get them taxed at a corporate rate doesn't seem right to me. So I'm not surprised you're having trouble getting a clear answer from CRA.

Legitimate business expenses can be a complicated topic in itself.
MarketLost
Contributor
Contributor
Posts: 62
Joined: 16 Jul 2016 12:30

Re: Non-Registered Account - Day Trading - Taxation Inquiry

Post by MarketLost »

dollabillz wrote:Thank you all for the reply.

To clear the confusion and my intention of using a corporation to day trade, i wanted to show business activity and the ability to expense continuing education courses that i will be taking to further my financial education, subscriptopms and other things such as phone bills etc. I also wanted to draw some funds monthly for myself.

What i meant by conservative is that my daily trading goal is to scalp a $100-200 profit on a daily basis which i have been doing so for the past couple of months and i am content with this discipline. I am not investing for long term and not worried about dividends. I usually trade one or two ETF's and achieve my target with 2 or 3 trades/day.

I have spoke with several CPA's and everyone has given different answers which has left me more confused. Some say that CRA will object to this method because it allows investors to pay less taxes then when doing under person non-registered account.
I would really appreciate if someone can explain me in the following context:

Assumption: 2016 total capital gains: $20,000 USD

Individual Non-Registered Account:
Tax % to pay: (to my knowledge: 50% of capital gains ($10k) taxed at the marginal rate)

Corporate Non-Registered Account:
Tax % to pay: (to my knowledge: 15% withholding tax + corporate tax rate)
I don't know why any CPA would be confused about what you doing. ;)

The answer is no, CRA won't object because as David points out this isn't a capital gain. This means you could easily be paying more taxes on this amount of income than if you did it in an unregistered account. Just work it out with $20K as being your only income, and you'll see that you are paying more. Furthermore, what does education have to do with your corporation? Please tell me you aren't going to try to write off your tuition in your corporation. Also, please tell me you aren't going to try to start writing off your home expenses in your corporation, are you?

We also have a difference of opinion in what is conservative. What you are suggesting is you are trying to make between $25K - $50K a year in trading. I don't consider this conservative, but YMMV.
Post Reply