With all of the recent activity and highlights on the stock market and purchasing stocks, you might be wondering what investment plans work best with the stock market. Depending on your activity levels within registered plans, the purchase and selling of stocks could be considered day trading. Be aware of what you can and cannot do within your registered plans.
What could be considered day trading?
When you purchase stocks in any plan, you are purchasing them to generate an income. Depending on certain factors or criteria, your buying and selling of stocks could be considered “business income” and you will be taxed as business income. Certain factors will determine if your actions will be considered day trading for the purpose of business income. These include:
- Frequency of transactions
- Holding period
- Time spent
- Short selling
- Knowledge of taxpayer
RRSP, RIFF and TFSA
Each of these accounts are registered accounts with the CRA. Each have different tax consequences as to when the money is deposited and withdrawn. In the case of RRSPs and RIFFs, all of the income is 100% taxable at the time of withdrawal. Therefore, any ‘day trading’ within those accounts should not be considered business income. TFSAs are different, as they are 100% tax-free, and using this registered account for day trading could result in any generated returns seen as business income and taxed accordingly.
If you choose to purchase individual stocks, take into consideration your actions now and in the future. Holding stocks for a long period of time should not be considered business income and you should be okay. It is always best to check with a tax professional on the consequences of day trading, keeping in mind that these rules could change at any time and it is up to the CRA to determine if your actions within your registered accounts are considered business income. If you are choosing to take part in the GME, AMC and other short sells, you should not do this within your TFSA.
