I've always known that foreign exchange trading is treated as capital gain tax in Canada. But just to be sure before filing my taxes soon, I've decided to double check the facts from Canada Revenue Agency.
As you know, the difference between income tax and capital gain tax is substantial. Income tax is taxed at your marginal tax rate. Whereas capital gain tax is a generous half of your marginal tax rate. Taxes in Canada is generally simple to do. The problem though, is sifting through the cacophony of information within the Canada Revenue Agency to find out the applicable rules.
Basically, forex trading can be treated as either income or capital gain tax in Canada surprise. According to ITR Foreign exchange gains and losses. As you can see, it is very vague. That's why forex trading can be considered income or capital gain tax. It is up to you and your accountant to figure out which works for you.
A noteworthy point in the above excerpt is that the holding period is not taken into account. So there's no day rule like in the states whereby frequent trading would miss out the capital loss credit if they re-purchase the same asset within day of disposal.
Looks like I have misconstrued the above article with regard to capital loss. In which if you repurchase your property e. Further down the page in ITR, we have the following bullet.
So there, we have it. The reason being that forex trading isn't part of my business operation because I have another primary source of income e. If income treatment has been used by a speculator in or a subsequent taxation year, the Department will not permit a change in the basis of reporting. You just have to be consistent on your filing, exactly what CRA consultant told me Paul Lam Engineering Social Impact.
Where it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of goods abroad, or the rendering of services abroad, and such goods or services are used in the business operations of the taxpayer, such gain or loss is brought into income account.
If, on the other hand, it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of capital assets , this gain or loss is either a capital gain or capital loss, as the case may be. Generally, the nature of a foreign exchange gain or loss is not affected by the length of time between the date the property is acquired or disposed of and the date upon which payment or receipt is effected.
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 "speculator" in commodity futures see 7 and 8 or ITR.
However, if such a taxpayer has special "Inside" information concerning foreign exchange, he will be required to report his gains and losses on income account. As a general rule, it is acceptable for speculators to report all their gains and losses from transactions in commodity futures or in commodities as capital gains and losses with the result that only one-half the gain is taxable, and one-half the loss is allowable subject to certain restrictions, hereinafter called "capital treatment" provided such reporting is followed consistently from year to year.
Addendum via reader Lem: I think you forgot to mention that in IT bulletin it states the following, 8 If a speculator prefers to use the income treatment in reporting gains and losses in commodity futures or commodities, it may be done provided this reporting practice is followed consistently from year to year.More...