[healey]

I currently have about 2.5K of my 5K allotment in a Questrade TFSA (WebTrader Beta with streaming level I TSE quotes). I need to know if there is anything better for my other 2.5K. IB (Interactive Brokers) would be almost perfect for this, but they don't offer TFSA's. Argh!

I need:
-cheap commissions
-Advanced order types. Such as trailing stops, stop-losses @ market, stop-losses @ limit, market-on-close that can be run in parallel to a sell order (Questrade cannot run them in parallel for some reason...pathetic!)
-Good alert system. Ex. I want a sound to play on my computer after an order is filled. So, if I'm in my apartment doing something else, I'll know to come down to the PC.

 

[balexis]

Edit: mixed up TFSA with something else, sorry.

 

[FrugalTrader]

Just curious, why are you looking for a TFSA for daytrading? Do you know the CRA will tax you on those gains if the TFSA is used this way?

balexis, do you have documention to support your statement?

healey, for a low balance, I believe Questrade is your best bet. Next lowest is perhaps itrade with $19.99/trade.

 

[healey]

balexis: Are you 100% sure on that? I've never seen that mentioned anywhere.

ft: Thx, I'm gonna take a look at that. I see you reviewed it on your discount broker review page.
The the 19.99/trade is a big drawback. But, do you know if they allow advanced order types & alerts?

 

[Mockingbird]

Do you know the CRA will tax you on those gains if the TFSA is used this way?

Could you please provide a link for this claim?


I believe Tradefreedom also provides TFSA Account with some basic order types. Regular $9.95/trade and $6.99 for the active traders. Unfortunately, there aren’t many competitive choices of brokers here in Canada. Agree with FT, stick with Questrade for low balance.

 

[healey]

Mockingbird: Does TradeFreedom charge you removing liquidity fees? I couldn't see anything mentioned on that on their website.

 

[balexis]

Erm so sorry to spread such misinformation, I completly mixed up TFSA with something else.

 

[JF.]

I currently in the process of opening a TFSA account with TradeFreedom. Hope all goes well.

 

[robert99a]

No one ever suggests Credential Direct. Is it because they're terrible or because no one has any experience with them? It's $19 a trade. With 25 trades per quarter, this goes down to $10 a trade. For a day trader, 25 trades per quarter should be easy.

I have never tried them so I don't know if they're good or not.

 

[healey]

Robert99: That's a very good point! I actually have a Credential Account that I opened a few years ago. They're pretty good (ie. they give you free level 2 data) except for the high fees.

Their active trader of 9.95 a trade is very enticing. However, I just called them to get some more info on it...you have to go thru one quarter (3 months) making at least 25 trades at the 19.99+up rate to get that rate. But you don't get refunded for those 3 months which sucks!

What's interesting is that if I could tap into their active trader rate, it would be even cheaper for me than Questrade. Because Questrade charges 0.001/share for orders that get executed at first few mins at the market open. I get dinged with that a bunch.

QT also charges for removing liquidity (0.001/share). Credential does not at all! However, I rarely do removing liq. trades with QT, so that wouldn't benefit me. So, for all you active traders out there, Credential might be cheaper (after going thru the painful 3 month process)!

JF: I'm just checking out TradeFreedom's fees (http://www.tradefreedom.com/en/tradingprodfees/feescommissions.asp). Not bad. $9.95 flat (plus ECN fees if applicable...I guess that would be for if you are removing liquidity). I'm gonna check into them a bit more.

 

[Mockingbird]

Mockingbird: Does TradeFreedom charge you removing liquidity fees? I couldn't see anything mentioned on that on their website.

For US stocks, $9.95 flat if you trade thru a managed route. Add on ECN fees if you use direct access method. (between $0.003-$0.005/sh)

For CAD stocks, $9.95+exchange fee. $0.036/sh for TSX and $0.0004/sh for TSX Venture.

 

[j8chan]

"Just curious, why are you looking for a TFSA for daytrading? Do you know the CRA will tax you on those gains if the TFSA is used this way?"

Is there a link i can find this information, i looked on the CRA website. And what is considered daytrading by questrade?

 

[healey]

j8chan: it's not true. If you look, you'll see that balexis retracted his/her statement.

 

[j8chan]

thanks healey.

 

[Robillard]

I can't find a specific reference on the CRA's website, but I believe that income from short term trading in securities, i.e., day trading, is treated as active business income, and not capital gains. There is a technical interpretation on the issue from 1984 as it pertains to section 39 of the income tax act at this url: http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html. See paragraphs 17 & 18:

17. The presumption that gains from security transactions are on income account will also be taken by the Department in any situation where it is apparent that the taxpayer has used special information not available to the public to realize a quick profit.

18. The gain or loss on the "short sale" of shares is considered to be on income account.

Now, the bulletin that announced the TFSA program at http://www.cra-arc.gc.ca/E/pub/tg/rc4466/rc4466-08e.pdf says that income earned in the account is tax free. Notice how in the brackets that investment income and capital gains are mentioned explicitly. Active business income, even if it is derived from trading securities, is not investment income. I do not have a reference for this, but it was not the intention of the government for the TFSA to allow Canadians to earn active business income tax free.

I think the general rule is, a gain earned from buying and selling a security over a period that is shorter than one month, is treated as income and not as a gain on capital. Thus, the gain is fully taxable, and not 50% taxable as a capital gain normally is. Likewise, a loss earned under the same circumstances is not treated as a capital loss. Such a loss cannot be treated as a capital loss and set off against capital gains.

In short, trading income is active business income and you have to pay tax on it, even if it was done in your TFSA. If you are a swing trader though, and hold positions for a month or longer, it is possible that your income would be treated as capital gains, and in the TFSA it would not be taxable.

Additionally, there is a reference on the taxtips website:
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm

 

[healey]

robillard: #18 is clear that shorting is "business income".
However, #17 propably doesn't apply to most day-traders. Why? Well #17 stipulates that there must be the use of "information not available to the public."

Regarding day-trading being taxable in the TFSA. It's not at the moment. There's been no announcement of such by the crooks in office. But, I think it's possible in the future...the politicians have an incentive to minimize what they call "tax leakage" (aka just letting keep their own money!)

 

[Robillard]

Hmm... I should have also drawn attention to paragraph 10 and 11 of IT-479; see subparagraphs 11(a) and 11(b) in particular:

10. Where the whole course of conduct indicates that

(a) in security transactions the taxpayer is disposing of securities in a way capable of producing gains and with that object in view, and

(b) the transactions are of the same kind and carried on in the same way as those of a trader or dealer in securities. the proceeds of sale will normally be considered to be income from a business and, therefore, on income account.

11. Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

(a) frequency of transactions - a history of extensive buying and selling of securities or of a quick turnover of properties,

(b) period of ownership - securities are usually owned only for a short period of time,

(c) knowledge of securities markets - the taxpayer has some knowledge of or experience in the securities markets,

(d) security transactions form a part of a taxpayer's ordinary business,

(e) time spent - a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

(f) financing - security purchases are financed primarily on margin or by some other form of debt,

(g) advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

(h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.


Of course, Finance is deliberately non-specific in their choice of language in order to give the CRA maximum leeway. Also note that the general anti-avoidance rule in the act may apply if other more specific provisions of the in the Income Tax Act do not. People who are using the TFSA for day trading are risking having their tax returns flagged by the CRA for assessment and audit. Brokers are required to share information on client securities transactions, in RRSPs and TFSAs in particular, with the CRA.

 

[healey]

Robillard: thx for that additional info on it-479. Very useful.

Re: TFSA day-traders, I disagree with you on this. I would be very surprised if the bureaucrats started auditing TFSA day-traders .

 

[Kinny]

Anyone care to mention any good day-trading stocks on the TSX?

 

[OhGreatGuru]

It would not surprise me if the Dept. of Finance decides that day-trading is an abuse of the intended purpose of TFSAs. They have already announced changes to crack down on other forms of abuse. See http://www.theglobeandmail.com/repo...-of-tax-free-savings-accounts/article1329844/