How much is the tax on Forex trading...in Canada

Trading Discussion Trading Lifestyle
42

Well, I got tired of talking to numerous accountants with different answers so I called Revenue Canada direct and got the answer. As an individual, they told me if I make money, I will be taxed as Capital gains and to go to schedule-3 on our income tax form which after answering will take us to Line-127 Capital Gains.

The guy was actually very knowledgeable and from what I gathered, he is trading Forex as well so he was fast to give me all the answers and very friendly too. He even told me to beware of Forex and to do my homework on searching for a highly reputable broker :smiley: So, behind CRA there are real people trying to make a buck just like us!

43

Kudos to you for taking the intiative to get some answers the old fashioned way! I felt their online instructions were pretty clear, but admit I probably shouldā€™ve given them a call myself 3 years back. Glad to know Iā€™ve been doing it by the book, and of course I have a full transaction history (100ā€™s of pages long) in case I get audited.

I never believed CRA was ā€œout to get meā€, just that they expect you to do your best to report the money you make. Iā€™ve never spent more than an hour reporting my FX trading each tax year, I donā€™t think it has to be a stressful thingā€¦

44

It only becomes stressful if you donā€™t want to pay it! My concern was having to pay both US and Canadian taxes (double taxed), and I guess that is a reality I just have to deal with.

I have so many forex trades. Some only open for a few minutes, and with a profit of a few bucks. Others open and closed because I traded the wrong way by accident. I think Iā€™ll have to stick to a permanent trade method unless I want to keep track of 1000s of transactions. Especially when I start making the big bucks in Forex. :slight_smile:

Synergy

45

It didnā€™t take me long after talking to several accountants that there was much confusion so I had to call CRA lol. I just donā€™t like guessing about tax so Iā€™m glad I called.

46

ā€œ[I]He even told me to beware of Forex and to do my homework on searching for a highly reputable broker[/I]ā€

Well, your right. The best way to handle the forex revenues are to report all transactions on SCHEDULE 3 in summary form and keep actual transaction lists for review if needed. This way you get taxed on 50% of money made.

I have a question about brokers in Canada. I am looking at 2 brokers currently, SmarttradeFX and InvestTechFX. I would like to go with Smarttrade, but they are fairly new and I canā€™t find any track record or reviews. Anyone out there got a good broker, or know these guys???

Thanks in advance to any members that can help. To the adminsā€¦hope this question doesnā€™t ruffle feathers.:):slight_smile:

Chris

47

Hi ā€œused2bā€ I am not aware of the 2 brokers that you have mentioned so I canā€™t comment. The only broker that I have used here in Canada is MF Global. I was limited to brokers because I live in BC so had to choose them. I really am mixed with MF. When I started my first live account, I was not doing all that well. Coincidentally, the server would frequently shut down on me, and I would have to log in again, but sometimes it wouldnā€™t allow me to do it for an hour or so. You can see how that could be problematic. Additionally, I had placed a trade one time, but not yet my stop loss. For some reason, the server froze my computer connection!!! It would give me a message, stating that my stop loss trade was ā€œpendingā€. I sat there sweating my balls off watching my account depreciate. After calling them and starting an official audit, they did reverse the error. Even though they responded to this error, it was a pain in the ass, and it was very tiresome, waiting to see if they were going to do anything about the issue. You can not trade successfully if a problem like this was to continue. Because I was limited for brokers, I gave them another chance, and am with them now. My trading success has improved since I blew out my first balance, and coincidentally so has the server connections. Just my opinion, but I have a feeling they try to burn the ones who arenā€™t that experienced, and let the ones who make money ride their wave, or at least for a little while to give them hope!!

I do have another broker, but it is off-shore in Switzerland; it is with Ducascopy. I have been with them for about 8 months, and so far it is great platform, very stable and I like how formal things are with them (ie reporting ability). I have not tried to withdraw money, so I canā€™t comment on the most important aspect of our trading!!

[U][B]Regarding Taxes[/B][/U] - Can anyone give me some insight into Canadian tax implications while trading outside of Canada, such as Switzerland. I am wondering if it is equally critical to file my taxes, or if it is possible to avoid filing. I have read somewhere that as long as ā€œcapital gainsā€ gained in a foreign country is not greater than $10k per year; you donā€™t have to claim it? What if I gained greater than $10k per year but do not take it out of the brokers account; does that constitute gains for the year, or are capital gains only registered when you pull the money out of the account?
Thanks CH

48

Is it possible to trade Forex with money from a Tax Free Savings account? Iā€™m not too sure on the specifics, but I currently trade stocks with funds from a TFSA and I do not have to pay taxes at all. Now, I havenā€™t looked into that in regards to Forex but there could be a possibility?

Clark.

49

I seriously doubt there is a limit to the amount you can gain and not pay tax on it. Secondly, your account might be in Switzerland, but you do your trading in Canadaā€¦ Canadian income tax law indicates that as a Canadian Citizen, you have to declare all income made abroad and that you donā€™t have to pay tax on it as long as you have paid tax on it in the country you earned it in provided that country has a tax treaty with Canadaā€¦ this can really be a bit complicatedā€¦

I believe that until make a withdraw from your account, any earnings are an ā€œunrealized capitol gainā€

If you are really earning a substantial amount, I would suggest you seek out a qualified tax specialist.

I have an offshore account in the UK, but I declare my earnings as a capitol gain. Not to mention in todayā€™s banking world, when dollars are being transferred regularly, they are keeping track so best is to honest and declare it up front.

Cheers

50

Being only taxed as capital gains makes forex even more appealing as a career. From what it sounds like, you only get taxed on half your money at whatever bracket youā€™re in. So this essentially means you would pay half the tax of a normal income tax paying job? Not to mention you arenā€™t paying into EI and all those little extra taxes?

51

The gains on forex in Canada are considered as ā€œCapital Gainsā€ so 50% imposition.

The amount you need to declare is the amount made from your trading account in the fiscal year and not withdrawn. An unrealized profit is only if you have orders still open at the end of the fiscal year, those you wonā€™t have to declare.

52

Hey everyone,

Before I started trying too trade Live I actually called the CRA and had to be forwarded to some 3 different people as most people working there didnā€™t have the answer.

But according to them, in summary this is what I was told by the CRA on the phone.

You are only taxed %50 of ALL your trades (Winning AND losing trades)
Of that %50 only a certain percentage is taxed, (Which I believe was around %30-ish. I have too call back to clarify that before tax time)

And the most important part (When your finally making the big bucks) you are only taxed UP TO $250,000.

So say your yearly win/lose is $500k. 250k is only taxable, and OF that, only some %30 is taxable.

This is what they told me on the phone, and that was after a few people couldnā€™t answer my question. (So hopefully they did give me a solid answer)

(Also to the User ā€œused2bā€ regarding brokers in Canada. I personally have never heard of those two brokers, but like Bigsteely said I too use MfGlobal as well. I personally think there great for the few options we get in BC. And he was right about some problems with the program, but from what I researched that is only if your using the Mt4 platform; which apparently has problems with all Brokers [Donā€™t quote me on that though]. )

Hopefully that may help, but when in doubt just give the CRA a call?

And as stated earlier, donā€™t avoid paying taxā€™s. Once they made a personal error to my mother, and said they messed up on her taxā€™s and gave her a few thousand dollars over the course of a few months. It was all there fault. Then 3 years later, they said ā€œOmg, we actually didnā€™t make an error, sorry!ā€ And demanded ALL the money they gave her back in the following month. We got a lawyer, etc. and in the end the money had to be paid back.

So yes, donā€™t mess around with the CRA, as what they say ā€œgoesā€.

I hope this was of some help to people.

53

Hi
I read your post about canadian income for forex. Please i need some information, I be very thankful to you for this.
I start trading forex Jan.,2010. I start very small one lot size only US$1000. I trade 30 to 40 times a month. I trade all
major and even cross rates too like AUDCAD, AUDJPY,EURCHF, GBPCHF etc.As for I understand on schedule 3
on line 151 and 153, have to show whole year open position and then closing position plus profit or loss.
So how I calculate trading size like my lot size is US$1000, lets say I trade EURUSD rate 1.3200.So I trade US$1000
this my lot size or I trade US$1320.00 and please can you let me know how to calulate cross rate.And column
where is line 151 and 153 is I have to mention this is forex trading.As I am new trader this year I loss few hunderds
for future can you recomend couple accountants who deal with forex. I could not find any CA who dealing with forex

    Thank you very much
54

From what I understand, we cannot report forex income as capital gains if you are trading regularly because according IT-459, you are running a business:
"1. It is a general principle that when a person habitually
does a thing that is capable of producing a profit, then he
is carrying on a trade or business notwithstanding that
these activities may be quite separate and apart from his
ordinary occupation. "

According to IT-95R,
"6. A taxpayer who has transactions in foreign currency or foreign currency futures that do not form part of business operations, or are merely the result of sundry dispositions of foreign currency by an individual, will be accorded by the Department the same treatment as that of a ā€œspeculatorā€ in commodity futures see 7 and 8 or IT-346R. "

The latter is what would have in theory allowed us to qualify for being taxed on only 50% of our profits. Unfortunately, IT-459 states that we are running a business, and so we do not qualify for treatment as capital gains. As a result, if you make more than a few currency transactions per year, I believe you must report it as business income.

This is my understanding of the situation after talking to several accountants and CRA, but obviously there is a gray area, and further comments are welcome. Cheers.

55

So has anyone been audited and required to change their method from reporting forex income as capital gains to business income?

Can anyone advise me on the correct procedure for calculating the p/l for forex transactions. I have a USD account and trade USD/CAN pairs. What Iā€™m wondering is if I can just use the summary p/l and convert this back into CAN$ using the average BOC rate for the year once at the end of the year or do I need to convert each transaction based on the BOC rate on the day the trade was made? Not excited about doing this for all 1000 transactions last year.

56

ive heard that spread betting is not taxable in the uk and that its basically the same as trading forex

57

So easy to bring money into the country as long as you dont mind paying your 40% tax LOL

58

Any closed position is considered realized profit/loss and has nothing to do with withdrawalā€¦

I spoke to the CRA last week to clarify this since itā€™s my first month in Canadaā€¦ I told them that forex is my primary income so how would it be taxedā€¦ They asked me to clarify where the account is? And iā€™ve told them its outside Canadaā€¦ They refered me to the interenational tax sectionā€¦ Those guys told me that any profit made in forex is considered capital gain and only 50% of it is taxableā€¦ There are 2 tax rates applicable on the remaining 50%ā€¦ One is about 15% and the other is about 5%ā€¦ irrespective how much the profit isā€¦

I then asked them if I make withdrawals after that during the year and if it would be considered income and then taxableā€¦ They said itā€™s not taxable since you already paid the tax on it as a capital gainā€¦ They said that I have to do nothing now just to write down how much is held in my account when I came to Canada and then how much it becomes on April next year and the form to be filled is T1135

59

I have the answer for you clear as a bell.

  1. Canadain tax law is ā€œopen to interpetationā€, so who interperts it first is right.
  2. Get a tax lawyer, not an accountant to act on your behalf because the CRE will really take notice and cannot repeal what he says unlike that of an accountant.
  3. Of course you have to pay tax, how much is another storyā€¦
  4. If you donā€™t want to pay any tax then there is only one legal way you can do that and that is to resign as a taxpayer.
  5. To resign, you have to go to a lawyer to get it done right, then you can trade with no tax because you donā€™t have a principle address in this country. This is big deal because you will have to pay captial gains on all your wealth and probably have to state where you will be living.
  6. Hong Kong is tax free only if you are not a businessā€¦there ya goā€¦You can still live in Canada but itā€™s not your principle resideneceā€¦donā€™t believe meā€¦itā€™s the first thing they ask you on your tax form.

I have been audited and a tax lawyer is your way out. I suggest you go to a BIG law firm, not some newbie.

60

Iā€™ve got the answer to this question couple of months ago through the CRAā€¦ So I am very clear about thisā€¦ Profits made from exchanging currencies or stocks are considered capital gainā€¦ Capital gain tax rate would be 10%ā€¦

61

For complete taxes calculations (Canada) on Forex account, Stock Non Registered accounts & Stock Registered accounts, use this Excel spreadsheet.
It is free & updated every year.
st_e.html
Just Google my userid to find it (or search Twitter for PCIMPOTS), thanks

In summary:

Gains or Loss goes on line 151 & 153 of schedule 3
Roll Over goes on line 130 (if positive) or on line 221 (if negative)