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Day Trading Taxes in Canada 2022 | Day Trading in TFSA Account? - YouTube
Channel: Humbled Trader
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day trading taxes in Canada how exactly
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do you do it and can you trade with a
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TFSA account since I'm a proud Canadian
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trader I've gotten tons of questions and
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comments on how do we do taxes for day
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trading income here in Canada so we do
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not god forbid anger the CRA Canadian
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Revenue Agency and trust me you do not
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want the CRA going after your app before
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we started here is a mandatory
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disclaimer I am NOT a CPA nor a
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financial advisor I'm not licensed I
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don't know anything about taxes
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everyone's tax situation will be grossly
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different it's your own responsibility
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to ensure all your taxes are filed
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correctly and legally by a tax
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professional I have no idea I'm talking
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about I'm bad at math and I didn't even
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get straight A's in high school okay
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okay I lied I totally did get straight
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A's in high school but just a stole not
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like eight pluses and if you're Asian
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you know that ace stand for average I've
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never actually prepared and done any of
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the taxes myself I've always consulted
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my CPA every single year to do the taxes
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for me but what a purpose of this highly
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requested video strictly for
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entertainment purposes of course I
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booked a business tax consultation
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appointment with my CPA to discuss day
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trading taxes in Canada so this video is
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simply just why I learned after the
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one-hour consultation session it's not
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meant as a financial advice nor tax
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advice you should always talk to a tax
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professional when you're filing your
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taxes especially when it comes to
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something as complicated a state rating
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income whether it should be counted as
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capital gains which is only 50% taxable
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or as a business income which is a
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hundred percent taxable this video
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you're watching right now really took a
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lot of time and money to make I had to
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pay for a business tax consultation
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session with my CPA prepare my own notes
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and do my own research with questions
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and then take note throughout our
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one-hour session at her office all
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that's just to make this
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10 to 15-minute video so if this video
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helped you out in any shape or form or
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my bath jokes are so bad that you laugh
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just a little bit oh I ask is for you to
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drop a like on this video that would
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really mean the world to me and make
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that expensive tax consultation session
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well worth it
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so it's trading income considered
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capital gains income or business income
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this is perhaps the biggest questions
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many Canadian traders have because
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business income is just like your
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employment income let's say you make ten
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thousand dollars from trading and that's
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considered business income and you're in
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a twenty percent tax bracket that means
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that you have to pay the CRA two
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thousand dollars in taxes and you take
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home is only eight thousand dollars
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whereas if you are filing the same ten
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thousand dollars trading income as
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capital gains the only 50% of that
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income is taxable so you would pay
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twenty percent tax rates and only five
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thousand dollars so that equates to
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paying a CRA only one thousand dollars
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in taxes and you get to keep the
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remainder nine thousand dollars to
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answer that important question of
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whether you're day trading income should
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be considered business or capital gains
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you first need to find out whether you
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qualify as a professional day trader or
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an investor and no you cannot just
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decide I yourself and report only 50
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percent of your trading income just
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because you say so life doesn't work
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like that
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it has to be under the almighty CRS
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rules whether you qualify as a day
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trader or an investor it's mostly
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defined but not limited to these four
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factors how often do you trade how long
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you hold the securities for the amount
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of time you spend on trading and
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studying the market and how substantial
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your trading income is so for the first
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two definitions when we're day trading
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we're buying a position and selling it
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really quickly within the same day
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that's why it's called day trading not
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monthly or weekly trading as a day
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trader I do part
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- paid in the market every single day
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that the markets open most days I'd make
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one and ten trade today but there would
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be day so I make more than 30 50 60
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trades or even more because day trading
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is my business
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whereas if I was an investor I would
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probably only be making one to five
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trades per month maybe I'll be placing
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an order to buy some Tesla shares a
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couple months ago when a stock crashed
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below $200 and perhaps I'll be selling
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those shares right now when Tesla has
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just reported earnings beats and
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breaking above all-time highs at $600 an
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investor who is claiming capital gains
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isn't making buying and selling
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transactions every single day he or she
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is likely holding the securities for a
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much longer period of time sometimes for
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weeks months and even years because that
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security is meant as an investment for
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the long-term growth of a company not
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just a trading vehicle for him to take
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advantage of the short-term price
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fluctuations now for the third question
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how much time do you spend on trading or
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even just studying the market a day
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trader by definition is most likely
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spending the majority of his or her time
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in front of a computer following all the
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news staring at each tick on the
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candlesticks on their screens and alone
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at home in front of a table for smokes
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beer cans and drowning in hilarious
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social media comments and rejections on
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dating apps oh wait that's just me
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generally speaking a day trader will be
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spending the vast majority of time
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studying a market like I do like I
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mentioned in these two videos I spent
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two hours before the market opens
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preparing for my trading plans and I'll
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actively trade for the first few hours
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of the open and near the market closes
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and I'll put in an extra two or three
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hours in the evenings studying the
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market as well so that's amount of time
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a day trader generally spends on the
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market is equates to a normal 9:00 to
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5:00 or 9:00 to 7:00 job because they're
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in a business of profiting from the
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volatility on a daily basis whereas if
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you were in
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you probably spend the majority of your
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daily hours on your employment job or
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your other business not related to
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trading and you will only have a couple
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of hours on the weekends or on a monthly
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basis for you to catch up on the market
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and look for potential buying and
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selling opportunities for your long term
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investment the fourth factor the CRA
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takes into consideration when looking at
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your trading income is whether you click
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the like button at the bottom of this
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video sorry sorry I just had to do it
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that was like perfect
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opportunity so the fourth factor the CRA
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looks at is how substantial your trading
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income is now this one factor in
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comparison with all the other three I
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mentioned earlier it's a little bit of a
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gray area because how the word
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substantial is defined is almost always
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gonna be different for each individual
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let's say you're working a full-time job
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as an engineer making a hundred twenty
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grand a year and you make ten thousand
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dollars from day trading just two days a
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week before you go to work that's
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trading income of ten thousand dollars
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may not seem substantial in comparison
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to a full-time employment income however
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if you were a stay-at-home parent or if
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you were students and you don't have a
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full-time job or any other sources of
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income you day trade them make ten
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thousand dollars that's trading income
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or be more likely to be considered
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substantial under the CRA definitions so
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that's why all our tax situation will be
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grossly different it's important to talk
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to a tax professional regarding your own
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personal trading income you may have
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realized by now yes I am a full-time day
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trader
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so that means a hundred percent of my
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income is considered business income and
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they're all taxed I'm a full marginal
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tax rate and I have a feeling if you're
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watching this video you probably have to
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fire your trading income as business
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income as well just saying
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but hey filing your trading profit US
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business isn't really that bad well
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besides paying more taxes and you and I
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had hoped for because there are pros and
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cons to filing I am
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as capital gains or as a business so
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let's talk about filing as capital gains
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first if you are a long term investor or
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a casual swing trader who met the four
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factors we mentioned earlier the
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advantage of doing so would be of course
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only 50% of that income will be taxable
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but the biggest disadvantage is that you
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cannot write off any of your business
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expense against that capital gains
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income so no Trading Commission's borrow
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fees no equipment write-off nada
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whatsoever you can only write off your
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capital losses against your capital
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gains so that's say you had some capital
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loss from real estate of $2000 so you
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can write that off against your $10,000
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capital gains from the stock market so
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your true capital gains will be $8,000
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and only 50% of that will be taxable
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another thing to remember if you're
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filing capital gains is the superficial
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loss rule or the 30-day rule here in
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Canada that means if you saw the stock
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for a loss and you buy it back within 30
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days you cannot claim the loss for tax
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purposes this rule of course is in place
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to prevent investors from manufacturing
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a loss in order to claim tax deductions
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on their capital gains so make sure to
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keep that in mind now let's talk about
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filing your day trading profit as a
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business income you'll be likely filing
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that under self-employment or as a sole
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proprietor and yes that means a hundred
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percent of your trading income is fully
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taxable instead of only fifty percent
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but the amazing advantage of filing as a
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business income is in a tax write-offs
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almost anything that you're using to
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make your day trading profit can be
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claimed as business expense against your
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income that includes your broker
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Commission scanners news alerts trading
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DVDs your internet bill and even part of
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your mortgage or rent if you work from
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home so the money I spend every year on
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trade ideas been Zynga and the super
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powerful computer that
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everyone is complaining in the comment
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section that I don't actually need these
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are all tax write-offs legally of course
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and another sweet advantage is that a
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hundred percent of your any other
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business losses can be written off
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against your trading income as well so
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let's say you made ten thousand dollars
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from trading but you lost two thousand
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dollars from your Lamborghini rental
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service because apparently limbo suck
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and I like my Civic more your true
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taxable business income would be eight
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thousand dollars and the same thing
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works the other way as well
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you can write up your trading losses
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against your other business income if
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you made a hundred grand from employment
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income and another ten thousand dollars
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from trading when you file that under
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capital gains without any tax write-offs
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you pay twenty seven thousand six
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hundred sixty nine dollars in taxes here
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in bc whereas if you don't qualify to
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file as capital gains and you file that
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as self-employment income you pay almost
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two thousand dollars more in taxes but
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remember those sweet write-offs I
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mentioned earlier let's say you spend
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three thousand dollars on DVDs broker
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commissions and computers this year you
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can write that three thousand dollars as
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expense against your ten thousand
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dollars income so only seven thousand
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dollars of business income is taxable
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and you'll be paying twenty eight
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thousand four hundred thirty-five
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dollars in taxes so in comparison to
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filing US capital gains it's really not
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that bad okay okay it's pretty bad
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actually Who am I kidding that's like
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almost a thousand dollars of difference
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that's seventy six ninety two bowls of
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Japanese ramen that we could have bought
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right there now that we're talking about
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the a trading as business income another
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topic that's really important to make
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note of is trading in your TFSA I get
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asked this question a lot can you trade
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in your TFSA account the quick and easy
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answer is no if you're trading behavior
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according to the four factors we talked
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about constitutes as business income t
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FS
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a account stands for tax-free savings
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account it's meant for you to use as
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personal savings and investing not to be
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used for business activities there has
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been instances of the CRA challenging
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individual CFA account in court because
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they assess their trading activities
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within the TFS account to be closer to
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business income rather than investing
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with savings but if you have talked to a
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CPA regarding your TFSA activities and
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they think that it's closer to investing
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maybe you just swing trade once or twice
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a month and you still have a full-time
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job then there's nothing to worry about
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using your TFSA account again whether
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you are a day trader or a swing trader
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the most defining factor that tells the
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CRA whether you're tweeting income
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should be capital gains or business
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income is first how often you trade and
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how long you hold the positions for each
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buying and selling activity that you
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perform on your broker is recorded on a
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tee 500 8 form which is a tax form that
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records your name social insurance
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number the kind of securities you bought
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or sold and the dates of those
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transactions and yes you already know
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the CRA will have access to the tax
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slips again it's up to you to talk to a
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tax professional regarding your
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situation do not cheap out on this pain
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taxes means you're making money it's a
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good thing if you want to live in this
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amazing country and enjoy all the social
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benefits then you should pay your dues
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again you do not want the CRA
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going after you if this video helped you
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out and clarify some questions you had
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regarding day trading taxes in Canada
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please remember to drop a like and
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subscribe to see more day trading
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content on this channel thank you guys
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so much for watching as always I'm the
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humble trader and I'll see you guys next
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week
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