Oct 03, 2016
the CRA views these entities to be corporations for Canadian… Read more »
“gains that are treated as income can be taxed at the lower rate of 15.5%”
Many people assume that gains from trading marketable securities are capital gains, taxed at half the rate that regular income would be taxed at. Well, as Felix says in “The Odd Couple”, you should never assume (Why Felix Says Don’t Assume).
Whether gains or losses on the trading of securities are capital or income is a question of fact. Administratively, the CRA allows most individuals to treat gains from the sale of securities as capital gains where jurisprudence would say they are regular income. An election is available in the Tax Act to commit the taxpayer and the CRA to capital treatment. However, this election is not available to “traders or dealers” of securities, financial institutions, non-residents and corporations in the money lending business. It is not only registered or licensed professionals who are considered traders or dealers in securities. Taxpayers who are not registered or licensed may be considered to be traders or dealers in securities based on the relevant facts. Some of the factors to be considered include:
Income treatment is not necessarily a bad result, especially if the trading is performed in a corporation. If the corporation is a Canadian Controlled Private Corporation (“CCPC”) gains that are treated as income can be taxed at the small business deduction (“SBD” rate of 15.5% (Ontario rate used for illustration purposes) versus as much amounts that could exceed 49% if earned personally. In various technical interpretations the CRA has confirmed that a corporate trader or dealer in securities would likely be considered to be carrying on active business eligible for the SBD on the first $500,000 of income ( $350,000 in Nova Scotia and $425,000 in Manitoba).
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