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Discussion Starter #1
Hi can someone help me better understand the tax implications between the different types of accounts?

If I buy and sell VOO (SP500) 3 times in the same day in my RRSP account the profit isn't taxable until i draw funds out of the account at a later day (and taxed at the rate applicable at that time). But if i do the same in my TFSA or Margin accounts the profit of each trade will be taxable. Is this correct?

If so that would mean a 10% profit on a trade made through a TFSA or Margin account would net a profit of only 6% (assuming a 40% tax rate )
*note i realize a 10% profit is substantial - i only used this value for simplicity sake)

thanks in advance.
 

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Hi can someone help me better understand the tax implications between the different types of accounts?

If I buy and sell VOO (SP500) 3 times in the same day in my RRSP account the profit isn't taxable until i draw funds out of the account at a later day (and taxed at the rate applicable at that time). But if i do the same in my TFSA or Margin accounts the profit of each trade will be taxable. Is this correct?

If so that would mean a 10% profit on a trade made through a TFSA or Margin account would net a profit of only 6% (assuming a 40% tax rate )
*note i realize a 10% profit is substantial - i only used this value for simplicity sake)

thanks in advance.
No tax in tfsa. hence the name “tax free savings account”. You only pay tax on trading gains when done in a non-reg (non rsp or non tfsa) account.

tfsa allows you to make gains without tax and you can withdraw funds without tax.
 

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Discussion Starter #3
Hi can someone help me better understand the tax implications between the different types of accounts?

If I buy and sell VOO (SP500) 3 times in the same day in my RRSP account the profit isn't taxable until i draw funds out of the account at a later day (and taxed at the rate applicable at that time). But if i do the same in my TFSA or Margin accounts the profit of each trade will be taxable. Is this correct?

If so that would mean a 10% profit on a trade made through a TFSA or Margin account would net a profit of only 6% (assuming a 40% tax rate )
*note i realize a 10% profit is substantial - i only used this value for simplicity sake)

thanks in advance.
i'm also wondering if i wanted to dabble in day trading (the same stock) would it make sense to do this in an RRSP instead of TFSA or Margin account?
I heard somewhere (or possibly mis-heard) that once you sell a stock the CRA won't let you buy it back until 30 days .... or something to that effect.
 

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You’re thinking of the superficial loss rule. you Can buy and sell as mush as you want. But you can’t sell a stock at a loss and rebut it within 39 days AND claim the loss.

if you buy and trade a lot, CRA may consider that your “job” and not allow you to claim the lower tax rates applied to capital gains.
 

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If you day trade or engage in overly frequent trading CRA can consider your trading activity to be a business and will make you pay income tax on your trading activity as if you were running a business.

ltr
 

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Discussion Starter #6
No tax in tfsa. hence the name “tax free savings account”. You only pay tax on trading gains when done in a non-reg (non rsp or non tfsa) account.

tfsa allows you to make gains without tax and you can withdraw funds without tax.
thanks, It looks like the max cumulative contribution room is $75,500 in 2021. with a 2021 limit of $6k. Do you know if i have taken funds out of my TFSA in the past will i be able to top up the account to my max or do i have a one time max cumulative limit ? Also if I'm maxed at the $75,500 and it grows am i then paying tax on the the amount exceeding the $75,500?

Sorry for the "rookie" questions - i find taxation confusing to say the least.
 

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thanks, It looks like the max cumulative contribution room is $75,500 in 2021. with a 2021 limit of $6k. Do you know if i have taken funds out of my TFSA in the past will i be able to top up the account to my max or do i have a one time max cumulative limit ? Also if I'm maxed at the $75,500 and it grows am i then paying tax on the the amount exceeding the $75,500?

Sorry for the "rookie" questions - i find taxation confusing to say the least.
When you withdraw, the amount you withdraw is added to your contribution room the next year.

Example:

You have maxed out TFSA in 2020.
You withdraw $10,000 in Feb 2020.
In 2021, your contribution limit is $16,000 - the $6000 everyone gets on Jan 1, plus the $10k you withdrew the previous year.

You need to keep track of your withdrawals/contributions yourself. You can see what CRA thinks on your CRA account, but it's not updated in real time, so it's much safer to track it yourself. I believe CRA only publishes the info in around April or May every year, for up to the end of the previous year.
 

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If you day trade or engage in overly frequent trading CRA can consider your trading activity to be a business and will make you pay income tax on your trading activity as if you were running a business.

ltr
... even in an RRSP? I thought it was just in an TFSA or perhaps a non-registered account, like a margin.
 

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When you withdraw, the amount you withdraw is added to your contribution room the next year.

Example:

You have maxed out TFSA in 2020.
You withdraw $10,000 in Feb 2020.
In 2021, your contribution limit is $16,000 - the $6000 everyone gets on Jan 1, plus the $10k you withdrew the previous year.

You need to keep track of your withdrawals/contributions yourself. You can see what CRA thinks on your CRA account, but it's not updated in real time, so it's much safer to track it yourself. I believe CRA only publishes the info in around April or May every year, for up to the end of the previous year.
... will there be a problem if you contribute in the next year of what you withdrew the previous year into the "same TFSA" account? By doing that (withdraw & contribute in the same year), it would seems you're overcontributing.

What about TFSA accounts in different institutions? Of course, this is on the assumption you're keep track of those amounts (so as not to overcontribute).
 

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Yes, in an RRSP, RRIF and TFSA. If you're trading a lot - it's a business and business taxes are due - no more exemption.

ltr
... all my stuffs (no RRIF, not there yet) are in slumber mode but good to know of this update, thanks.
 

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Hi can someone help me better understand the tax implications between the different types of accounts?

If I buy and sell VOO (SP500) 3 times in the same day in my RRSP account the profit isn't taxable until i draw funds out of the account at a later day (and taxed at the rate applicable at that time). But if i do the same in my TFSA or Margin accounts the profit of each trade will be taxable. Is this correct?

If so that would mean a 10% profit on a trade made through a TFSA or Margin account would net a profit of only 6% (assuming a 40% tax rate )
Note: if you earn a capital gain in a non-registered account (eg margin account) your marginal tax rate is only applied to 50% of the gain. Therefore a 10% "profit" (if its all capital gain) would net 8% in your example (tax is 0.4 x 0.5 x 10%) not 6%.
 

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Discussion Starter #14
When you withdraw, the amount you withdraw is added to your contribution room the next year.

Example:

You have maxed out TFSA in 2020.
You withdraw $10,000 in Feb 2020.
In 2021, your contribution limit is $16,000 - the $6000 everyone gets on Jan 1, plus the $10k you withdrew the previous year.

You need to keep track of your withdrawals/contributions yourself. You can see what CRA thinks on your CRA account, but it's not updated in real time, so it's much safer to track it yourself. I believe CRA only publishes the info in around April or May every year, for up to the end of the previous year.
I see how this works now.... Is there a difference from CRA's point of view between me topping the TFSA account with a contribution of 16k as opposed to topping it up 10k and making 6k in profit from the trades i'm doing in that account? In other words do they differentiate Topping UP vs profit growth through investments?
 

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Profit within the account is not a contribution. Think of it like a box. Put something in -> contribution. Take something out -> withdrawal. Any amount you take out can be put back in, but only in the next year.
 

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i'm also wondering if i wanted to dabble in day trading (the same stock) would it make sense to do this in an RRSP instead of TFSA or Margin account?
I heard somewhere (or possibly mis-heard) that once you sell a stock the CRA won't let you buy it back until 30 days .... or something to that effect.
The RRSP is the only safe place.
Too many trading wins in a TFSA can have CRA take a look. If too many criteria are met, CRA will say it's a business and tax it despite being in a TFSA.

The "don't buy back until 30 days" is the superifical loss rule. Where one is selling for a gain, it does not apply.

IMO, as long as the sell/re-buy is in a non-registered account, it might not be convenient but in the long run, may not matter. The loss that can't be claimed in that tax year is added to the cost base so it is deferred to the next sale.

Where it's a transfer of stock from a non-registered account to a registered one, the loss is gone for good as the cost base does not matter in registered accounts.


... will there be a problem if you contribute in the next year of what you withdrew the previous year into the "same TFSA" account? By doing that (withdraw & contribute in the same year), it would seems you're overcontributing.

What about TFSA accounts in different institutions?
As long as the year changes and the amount is smaller or equal to the withdrawal - that's all that matters. Take out $10K in Dec then in Jan, no matter which TFSA or what combination of TFSAs, as long as it's $10K - there is no issue.

As for "withdraw and contribute in the same year", I do that regularly so you will have to explain why you think it might be an over-contribution.
As long as one is reducing what's available as one makes contributions and adds the following year the annual amount plus last year's withdrawals, all that will matter is that the contributions do not reduce that TFSA contribution limit to a negative number. It's a running number, like one's bank balance.



I see how this works now.... Is there a difference from CRA's point of view between me topping the TFSA account with a contribution of 16k as opposed to topping it up 10k and making 6k in profit from the trades i'm doing in that account? In other words do they differentiate Topping UP vs profit growth through investments?
Topping up with a contribution reduces one's TFSA contribution room.

Having an investment gain changes the value of the account but means nothing, in terms of how much TFSA contribution room one has left and what one will be granted in the future.
Making a withdrawal means that amount will be granted in the following year, in addition to the annual allotment.

The potential tricky part is if there is a lot a selling/buying to increase the assets in the TFSA, as per the article link.
If the growth is regular income and limited buying/selling then there is no issue.


Cheers
 
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