Tax Tip:  Day Trading in an RRSP, RRIF or TFSA

Normally, earnings from within an RRSP, RRIF, or TFSA are tax-free. However, CRA believes that speculative activities within these types of accounts can constitute a business activity. Profits of a business carried on within these plans are not exempt from tax, unlike the regular income and capital gains from investment activities.

It also appears that individuals with large balances in their TFSAs may have been targeted by CRA. CRA has argued that, in some cases, the frequency of trades indicate that the taxpayer is running a trading business, and, therefore, the earnings are taxable as business income.

In one case, an investor increased the value of his TFSA to $180,000 via approximately 200 trades. CRA assessed the gains as taxable.

Action Item: Caution should be afforded to individuals who may appear to be day trading or otherwise earning business income in certain registered accounts.