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Canada Revenue Agency (CRA) is the Canadian equivalent of the IRS in the
United States. Prior to the CRA there was the Department of
National Revenue until November 1999. Then it became the Canada
Customs and Revenue Agency (CCRA) which lasted until a federal
government reorganization in December 2003. It was also referred
to as "Revenue Canada" under the Federal Identity Program of the
Treasury Board of Canada.
Income tax returns are due April 30th for most taxpayer and
June 15th for those running a business (including traders in
securities).
Tax payments are due in "quarterly payments" (March 15th
June 15th September 15th December 15th
) and any remaining balance due paid by April 30th
The above dates differ from USA
taxes where the quarterly payments are due April 15th
June 15th September 15th January 15th
and most income tax returns are due April 15th and
further - the USA, unlike Canada, allows for reasonable extensions of time
to file later than April 15th
USA Federal Reserve Board
exchange rates:
http://www.federalreserve.gov/releases/g5a/current/
Income tax rates in Canada for 2007
http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html
Federal Rates:
- 15.5% on the first $37,178 of
taxable income, +
- 22% on the next $37,179 of
taxable income (on the portion of taxable income between $37,178 and
$74,357), +
- 26% on the next $46,530 of
taxable income (on the portion of taxable income between $74,357 and
$120,887), +
- 29% of taxable income over
$120,887.
Provincial/Territorial Rates -
vary from 4% to 18%
(for all areas other than Québec, Québec
has its own income tax return filing requirements)
Income tax rates in
Québec for 2006
http://www.revenu.gouv.qc.ca/eng/particulier/impots/taux.asp
- 16% on the first $28,710
of taxable income, +
- 20% on taxable income between
$28,710 and $57,430 +
- 24% of taxable income over
$57,430
Revenu Québec:
http://www.revenu.gouv.qc.ca/
Income Tax Act &
Regulations
http://laws.justice.gc.ca/en/notice/index.html?redirect=%2Fen%2FI-3.3%2F
Federal - Tax Court of Canada
http://www.canlii.org/en/ca/tcc/
Individual "My Account" service
http://www.cra-arc.gc.ca/eservices/tax/individuals/myaccount/menu-e.html
"My Business Account" service
http://www.cra-arc.gc.ca/eservices/tax/business/myaccount/menu-e.html
Form T1013,
Authorizing or Canceling a
Representative (PDF file)
Form T1013,
Authorizing or Canceling a
Representative (web based if you have a Canada User ID)
Form
RC59, Business Consent Form
Represent a client
Tax Evaluations and Research Reports
http://www.fin.gc.ca/taxexp/2000/taxexp00_3e.html
Public Works and Government Services Canada:
http://www.tpsgc-pwgsc.gc.ca/
IRS information, concerning
Canada:
US Canada Income Tax Treaty Highlights:
http://www.irs.gov/pub/irs-pdf/p597.pdf
US Canada Income Tax Treaty:
http://www.irs.gov/pub/irs-trty/canada.pdf
US Canada Income Tax Treaty detailed technical explanation:
http://www.irs.gov/pub/irs-trty/canatech.pdf
Foreign Tax Credit:
http://www.irs.gov/pub/irs-pdf/p514.pdf
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.
How
can a CPA help you?
Why work with a CPA?
Tax Mama's I can do it myself, thank you!
Smart
Money's Finding a Tax Pro
The Blade's Complicated Returns send filers to the Pros
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
MEMBERSHIPS
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