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#1 April 2, 2005 22:31:00

SilverRex
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Canadian tax laws on currency trading?

Does anyone know how to file tax return in canada for trading the forex?

does gain.loss get treated the same as capital gains and capital loss?

anyone help on this would be awesome.

thanks


"Sometimes, more becomes less. In economics, we learn about the law of diminishing return."

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#2 April 3, 2005 00:43:00

BlueCollar
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Canadian tax laws on currency trading?

I think it is treated like any enterprise income. That is, you generate income, report it, deduct the expenses you incurred and the net is taxed at your regular bracket rate. If you lost $, your total income will be reduced by an amount equal to your loss+expenses. Overall it is treated like self employed income. It has nothing to do with capital gains and losses as that applies only to equities and mutual funds.

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#3 April 3, 2005 11:39:00

4X4Ever4me
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Canadian tax laws on currency trading?

Okay, it goes a little bit like this (as near as I have been able to figure out anyway).

Assuming that you are trading currencies strictly for the purpose of profiting on the rate fluctuations (ie: you are trading), and that there is no underlying "business" type purpose (ie: you are hedging your exposure in some kind of import/export business), then any gains or losses are treated a simple income under s.3(a) of the Income Tax Act (ITA).

Think of it like this. If your "job" (this doesn't mean you don't have another job, but you are simply looking to earn income via currency trading) is trading then you report the income as you would the income from any other job.

If you are exchanging currencies for a business purpose and realize a profit/loss than I think you fall under s.39(2) of the ITA and can treat it as a Capital Gain, 1/2 of which is taxable as per s.38(a) of the ITA.

Similarily if you are travelling somewhere and purchase USD to use abroad then you come back to Canada and convert your USD back to CAD and realize a gain/loss then that also falls under s.39(2) and is classed as a Capital Gain.

Basically if you are only trading currency to make money from trading currency than it is treated as ordinary income.

Note that you also have to declare all of the interest that you earn holding balances as income as well, but I don't know the section of that bit right at the moment.

I will point out that this is only my interpretation of the ITA and I could be missing something. Check with your accountant or your tax-preparer to be sure.


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#4 April 3, 2005 17:55:00

SilverRex
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Canadian tax laws on currency trading?

so under which forms on the tax return we we file for such income? gain or loss + interest and expense.


"Sometimes, more becomes less. In economics, we learn about the law of diminishing return."

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#5 April 3, 2005 20:46:00

4X4Ever4me
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Canadian tax laws on currency trading?

This is a link to the T1 General tax form which you have probably seen before.

http://www.cra-arc.gc.ca/E/pbg/tf/5000-r/5000-r-04e.pdf


Interest income goes on line 121.

Forex income would probably go on line 130.

You are going to want to save a copy of you Oanda transaction history or something you can use to substantiate the amount of interest or forex income you have declared should the tax people request to see a copy at some point.

I must reiterate that you confirm all of this with someone on a more formal basis. I am not an accountant or a tax lawyer (yet, but getting there) and I could easily be overlooking something.


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#6 April 3, 2005 23:03:00

rokr
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Canadian tax laws on currency trading?

Check this....http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.pdf
page # 18 !!

It seems to be classified as capital gain hence just 50% taxable!!!

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#7 April 4, 2005 06:53:00

4X4Ever4me
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Canadian tax laws on currency trading?

quote:
Originally posted by rokr:
Check this....http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.pdf
page # 18 !!

It seems to be classified as capital gain hence just 50% taxable!!!

That only applies if the foreign exchange transaction is a "capital transaction".

Read the portion that appears after the list of questions that starts "This chapter provides..."

http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-03-e.html


Then read this link here and substitute "foreign currncy exchange" for "real estate" and you wil get a good picture of when something is considered a "capital transaction" and eligible to be considered a Capital Gain, and when something is considered an "Income transaction" and is ineligible to be considered a Capital Gain.

http://www.cra-arc.gc.ca/E/pub/tp/it218r/it218r-e.html

This all appears on page 9 of the document reached via the link you posted as well.

Read the whole document before you jump to conclusions because you will get nailed if you don't claim this income properly.


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#8 April 4, 2005 14:13:00

rokr
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Canadian tax laws on currency trading?

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#9 April 5, 2005 16:22:00

SilverRex
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Canadian tax laws on currency trading?

anyhow either way any gains will be treated as income or capital gain but during a loss, would this reduce my total income and hence result in a tax credit back or reducing the total amount of tax I pay at the end of the tax year?

or in currency, you only pay that gains and suffer the loss with no tax credit reduction at all.


"Sometimes, more becomes less. In economics, we learn about the law of diminishing return."

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#10 April 5, 2005 19:29:00

4X4Ever4me
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Canadian tax laws on currency trading?

quote:
Originally posted by SilverRex:
anyhow either way any gains will be treated as income or capital gain but during a loss, would this reduce my total income and hence result in a tax credit back or reducing the total amount of tax I pay at the end of the tax year?

or in currency, you only pay that gains and suffer the loss with no tax credit reduction at all.

Use this formula

[(total income)+(total CG)]
-(total deductions)
-(total losses)
=income for the taxation year

Total income consists of your income from 4 sources, those being office, employment, business and property.

If one of those numbers is negative, it is not included in the (total income), it is included in the (total loss)

ie:
Office income = $100
Employment = $100
Business = -$50
Property = $100

then (total income) = $100 + $100 + $100 = $300 and (total loss) = $50

(total income) DOES NOT = $250

So, assuming (total deduction) = $200, the formula produces

(300)
-(200)
-(50)
= $50 income for the taxation year.

Note that if your (total deductions) was $250 your income for the year would be $0, not -$50. That is just the way the Income Tax Act (ITA) works.

However under provision 111(1)(a) of the ITA you could carry the -$50 of unused losses forward to the next year.

Basically this forces you to access your deductions first before burning up your losses.

Also note that your Interest income is included in your income from business or property under provision 12(1)(c) of the ITA.


So in other words, yes, a loss from trading reduces your total income. [Wink]


No pips for second place.

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