Canada

§1481(a)A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily performing any of the following acts with the intention of relinquishing United States nationality—

(1)obtaining naturalization in a foreign state upon his own application or upon an application filed by a duly authorized agent, after having attained the age of eighteen years; or

(2)taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years; or

(3)entering, or serving in, the armed forces of a foreign state if

(A) such armed forces are engaged in hostilities against the United States, or

(B) such persons serve as a commissioned or non-commissioned officer; or

(4)

(A)accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years if he has or acquires the nationality of such foreign state; or

(B) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years for which office, post, or employment an oath, affirmation, or declaration of allegiance is required; or

(5)making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; or

(6)making in the United States a formal written renunciation of nationality in such form as may be prescribed by, and before such officer as may be designated by, the Attorney General, whenever the United States shall be in a state of war and the Attorney General shall approve such renunciation as not contrary to the interests of national defense; or

(7)committing any act of treason against, or attempting by force to overthrow, or bearing arms against, the United States, violating or conspiring to violate any of the provisions of section 2383 of title 18, or willfully performing any act in violation of section 2385 of title 18, or violating section 2384 of title 18 by engaging in a conspiracy to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, if and when he is convicted thereof by a court martial or by a court of competent jurisdiction.

(b)Whenever the loss of United States nationality is put in issue in any action or proceeding commenced on or after September 26, 1961 under, or by virtue of, the provisions of this chapter or any other Act, the burden shall be upon the person or party claiming that such loss occurred, to establish such claim by a preponderance of the evidence. Any person who commits or performs, or who has committed or performed, any act of expatriation under the provisions of this chapter or any other Act shall be presumed to have done so voluntarily, but such presumption may be rebutted upon a showing, by a preponderance of the evidence, that the act or acts committed or performed were not done voluntarily.

Special rules for Canadian Traders or Dealers in Securities:
The default position assumed for an active trader in Canada is similar to what in the USA is Dealer Status or the optional position of Trader Status.

An active trader is engaged in "an adventure or concern in the nature of trade" with such taxable activity being on income account. Otherwise if the trading activity does not rise to that level, the taxpayer has "purchases and sales of securities on capital account."

The Canadian position is somewhat similar to the IRS Dealer or Trader M2M position (although "Superficial Losses" [Wash Sales] apparently are not allowable in any event).

In the USA the Securities Trader's gains are not subject to Social Security taxation.
In the USA the Securities Dealer's gains are subject to Social Security taxation.

In Canada the Securities Dealer's and the Securities Trader's gains both are subject to Canada Pension Plan (CPP) Quebec Pension Plan (QPP) Old Age Security (OAS) and related social service taxes.

the election to be treated with "investor status" so-to-speak:
Canada allows for an irrevocable lifetime election out of this semi-equivalent of Trader Status and M2M to be made by individuals. Once this election is made, then all the subsequent gains and losses are treated similar to USA long-term capital gains (though no $3,000 annual write-off is allowable). Capital gains in Canada are taxed similar to the way IRS used to tax long-term capital gains several decades ago; that is a 50% tax-free allowance of the amount of the net gains is allowed before applying the regular Canadian tax rates.

Apparently rules of attribution regard a husband and wife to have both made the election. Apparently they may not make the election independently of each other.

Once the irrevocable election is made, most of the trader's operating expenses, other than margin interest, are no longer deductible.

The subsection only applies to Canadian Securities and not, for example to trading in US Securities. "For the purposes of this section, 'Canadian security' means a security (other than a prescribed security) that is a share of the capital stock of a corporation resident in Canada, a unit of a mutual fund trust or a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by a person resident in Canada."

and further... "An election under subsection 39(4) does not apply to a disposition of a Canadian security by a taxpayer ... who at the time of the disposition is (a) a trader or dealer in securities,..."

A trader in securities does not have capital gains and losses per Canadian law (referred to as purchase and sale of securities on capital account) rather, his purchase and sale of securities are on income account. The significance of this is that the income account is fully taxed, whereas the capital account can be taxed with a 50% exclusion - 50% of the capital gain is not taxed. The holding period of the securities is not a direct factor since unlike the IRS, Canada does not have a concept of "short-term capital gains" vs. "long-term capital gains."

SUBDIVISION C TAXABLE CAPITAL GAINS

Election concerning disposition of Canadian securities
39. (4) Except as provided in subsection 39(5), where a Canadian security has been disposed of by a taxpayer in a taxation year and the taxpayer so elects in prescribed form in the taxpayer's return of income under this Part for that year,

(a) every Canadian security owned by the taxpayer in that year or any subsequent taxation year shall be deemed to have been a capital property owned by the taxpayer in those years; and

(b) every disposition by the taxpayer of any such Canadian security shall be deemed to be a disposition by the taxpayer of a capital property.

Meaning of capital gain and capital loss
39. (5) An election under subsection 39(4) does not apply to a disposition of a Canadian security by a taxpayer (other than a mutual fund corporation or a mutual fund trust) who at the time of the disposition is
(a) a trader or dealer in securities,

CRA recently challenged a taxpayer filing as a "trader in securities income account" who had 17 trades (4 of which were held less than a week each) over a three year period - requiring him to be taxed as a "investor capital account"
ROGER LENG vs. HER MAJESTY THE QUEEN January 24, 2007. The case determined that the CRA was correct and the taxpayer lost his position that he was a "trader in securities income account."

A nice definition of trader is found in NANCY MCNEIL vs. HER MAJESTY THE QUEEN August 16, 2004

In addition to my finding that the expenses in question have not been proved to be sufficiently connected to a source to permit a deduction even if there is a business here, I note that there has been an election under subsection 39(4) of the Income Tax Act to treat gains or losses from the disposition of Canadian securities as capital. Virtually the entire pool of investments and virtually all transactions that have taken place in the subject year as part of the subject investment activity involve Canadian securities so that gains and losses from the disposition of such property are thereby precluded from inventory treatment.[3] That is, the Appellant, having calculated the gains and losses on the disposition of the Canadian securities as capital gains and losses, is not entitled then to treat the activity as a business since businesses buy and sell inventory, not capital assets. That is, the election precludes business treatment. If the Appellant wants business or inventory treatment, she would have to establish that subsection 39(4) does not apply, which would require that she establish that she is a trader or dealer in securities as provided in subsection 39(5) of the Act. Even if I find that the Appellant's activities constitute a business in this case, that does not necessarily constitute her as a trader or dealer in securities as would be required for the Appellant to escape the consequences of her election under section 39 of the Act. Exhibit R-5 showing dispositions of securities for 1998 and 1999 shows less than 100 transactions. A trader might have that number of trades in a month, week or day.

From time to time people get audited. When this happens the examination is handled here from Connecticut via telephone and fax.

Taxpayers requiring more assistance in their PLANNING, design and set-up of their trading business and with the PREPARATION or the REVIEW of their tax filings are encouraged to contact us for personally tailored tax advice at our normal rates.

What's needed to get started right away?

Write to us first with an outline your situation and what you are looking to accomplish (besides the obvious: lowering tax bill)

: GetMyNewYorkTaxesDone

Colin M. Cody, CPA, CMA
TraderStatus.com LLC
6004 Main Street
Trumbull, Connecticut 06611-2400

(203) 268-7000

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Social Security Tax Consequences of Working Abroad:
http://www.irs.gov/businesses/small/international/article/0,,id=97160,00.html

IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans (6/26/12)
http://www.irs.gov/newsroom/article/0,,id=258431,00.html

Social Security Tax Consequences of Working Abroad: http://www.irs.gov/businesses/small/international/article/0,,id=97160,00.html

IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans (6/26/12) http://www.irs.gov/newsroom/article/0,,id=258431,00.html

Social Security Tax Consequences of Working Abroad:
http://www.irs.gov/businesses/small/international/article/0,,id=97160,00.html

IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans (6/26/12)
http://www.irs.gov/newsroom/article/0,,id=258431,00.html