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Question about Trading Taxes in Canada


Hi. This is a question for anybody who lives in Canada and trades futures or anybody who just happens to know this stuff.

How much (%) taxes is one expected to pay for trading the ES? Are there certain tax brackets? Do you pay taxes to the U.S. or Canada?

Any related information is also welcome.

Thanks in advance.
Hi feng
I am a canadian trader and trading educator.

Let me 1st say that I do not dispense tax advice I can only share my personal experience

1. As a Canadian you pay taxes in Canada, regardless of where it is earned. As long as you live in Canda you must file a return

2. Futures, Stocks, OPtions ect.. traded on any exchange in the world your profits are taxable in Canada as a Canadian resident

3. Tax brackets are scaled for both personal and corporate taxes, from as low as 17.75% up 56%

4. If you trade as an individual you will pay personal income tax on your profts as Earned Income

5. Personal Earned Income will hit the maximum tax bracket at approx $60,000 at which point the last dollar earned, will be at the highest rate of about 56% (depending on your province)

6. That does not mean you pay 56% x $60,000 the taxes are graduated, so the the total effective rate I beleive is about 35% to 38% again depends on other stuff like which province

7. You can deduct expenses related to trading to offset your income, BUT BEWARE !!

8. In order to offset expenses you must declare yourself as a 'trader' to the taxman, and this has 2 very negative consequences

a. it is very very difficult to change that status if you ever decide you are no longer a trader
b. all your long term investmenys will be charged at the higher Earned income rate, instead of capital gains of 25%

So doing that is a BIG decision, and you will forgoe the low 25% cap gains rate

What to do??

If you are a new trader just starting out, then you can test the waters as a trader and do it personally.

Be usure to have a separate account desginated solely for active or day trading, and another account preferably at a different broker for investing. That will show your intentions to keep the 2 seperate

Next, if trading goes well and you decide This is the Life for you. Open and incorporated Company, federal or provincial dosent matter.

It will cost you about $800 if you do it on your own, there are plentry of good online services for that
OPen the trading account in the name of the Company

Make sure you pay all trading related expenses from the company
At the end of the year you can:

--- a. Pay yourself a salary
--- b. pay yourself a dividend

The Company will be subject to taxes as well, but small business tax in canada is 18% to %22 up tp $500,000 (could even be up to 750k now)

When you pay yourself a salary or a dividend you will be taxed on that, but Canada does not have double taxation, therefor if you already paid 18% tax in the company you would owe the balance of the othe 18% when you take it personal

So if they bump up the tax, why bother doing it in a Corp???

There are many take savings options, such as income splitting, paying a spouse or child for work performed, deducting business related cost or business related travel, you could use the profits in the company to invest in real estate... all this done by paying the low small business rate of about 20%

If things go really really well, and I am sure they will, you coud open a Family Trust that holds the shares of the Trading Company, and make the beneficial owners of the trust family members etc.... that would allow you to distribute the income at an even lower rate

I could go on and on....

Everyones situation is different, and you didnt provide many details about yours

Remember I am not a Tax Advisor and Not qualifaied to give Tax advice, these are only from my own experience, and hopefully this has pointed you in the right direction

If you are serious about it, then spend $200 for an hour with an accountant

First and Most Important is to trade profitably! So take a few months to prove that you can do it before creating any structures, or spending any money on accountants

Good luck and Good Trading

Greg W
gregw@thetradingzone.com
Hey Greg - thanks for that amazingly comprehensive answer!
Yes thanks VERY much Greg. it's been a huge help. I haven't even done a personal tax return in my life yet so I don't know anything.
Excellent information maybe we should put similar info for US taxes as well.

Good point wsjalerts13. I've started a topic for that here: Trading Taxes in USA
good job grey
My Pleasure to help out a fellow trader and a fellow Canadian

I don't have any knowledge on trading taxes for the USA, so I cannot offer any input in that thread.

But I've lived in Canada my entire life, and have filed far too many tax returns.

We are a high taxed part of the world and you need to put some thought into how you will structure yourself.
The best thing you can do is make sure to keep your trading in a different account than your investing at the outset

Most important thing you can do is learn how to trade profitably and consistently, then pay the taxes with a smile on your face, with the knowledge that you have achieved success in a business where it can be elusive

Greg W
gregw@thetradingzone.com
Greg,

It sounds like you know a lot about Canadian taxes. Do you know anything about the traders tax that is in the U.S. Congress now? I got an email about it an am quite concerned about my career as a day trader.

I look forward to your comments.

Hi Mike

I was just made aware myslef. In fact if they make it a user fee to be charged at the broker level as opposed to reporting it on your tax return

If they do that, then YES even Canadians will be affected as the tax or fee will be withheld

I was emailed a petition that already signed [url]www.VoteNo1068.com [/url] I have no idea if that will help, not even sure if my vote counts as a Canadian but it can't hurt

I do think this is a potentially serious issue and as traders we must make our voice heard or we could all suffer
Thanks for the reply Greg.

From reading over the bill at http://www.VoteNo1068.com/ it seems like this transaction tax could really impact retail traders.

What is your understanding on how this this affect U.S. traders?
Originally posted by ROETrading

As a Canadian who is day trading US stocks using Interactive Brokers, do I need to file taxes in the US or anything along those lines?

Thanx, SD.


No. File taxes as you normally would but now it's capital gains/loss since it is technically self employment. Ask your accountant for more details. People who work at accounting places tend to get overwhelmed by the term day trader but it's actually quite straightforward. Make sure you keep ALL records of your transactions.

Source: I am in Canada and have successfully filed a tax return as a day trader. Not in jail...yet