The Canada Revenue Agency is targeting taxpayers who trade securities in TFSAs because it\u0027s not exempt from tax on business income. Read on.
Play Video’s audit and reassessment activities, and the agency has been targeting taxpayers who actively trade securities in their TFSAs. A tax case decided earlier this month involved a taxpayer who grew his TFSA to more than $617,000 from $15,000 in three years by day trading penny stocks.Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc.
The taxpayer contributed the maximum allowable contributions of $5,000 to his TFSA in early January in each of 2009, 2010 and 2011. By Dec. 31, 2011, his TFSA had grown to a fair market value of $617,371. By the end of 2012, the TFSA’s market value had dropped to $564,483. Shortly thereafter, in January 2013, the taxpayer liquidated the securities in his TFSA, and transferred proceeds of nearly $547,800 to himself on a tax-free basis.
The CRA considers a variety of factors when determining whether a taxpayer’s gains from securities constitute carrying on a business, including the frequency of the transactions, the duration of the holdings, the intention to acquire securities for resale at a profit, the nature and quantity of the securities, and the time spent on the activity.Photo by Getty Images/iStockphoto
This rule is in direct contrast to the rules governing active trading in a registered retirement savings plan or registered retirement income fund . The Income Tax Act has a specific rule that exempts both RRSPs and RRIFs from paying tax on business income when that income is derived from investing in qualified investments.
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