Taxes on investments

[guy312]

I am fairly new to trading stocks...
Last year was my first year of trading and I had significant losses from trading (capital loss). I didn't have pay much in taxes (on dividends and interest)
This year, I have made money (capital gain). How much will I have to pay? Is my income from my day job a factor?
Any links?

I file my own income tax return every year...will my losses from last year offset my gain from this year?

thanks

[LondonTown]

Prior capital losses can be used to offset current capital gains. This is not impacted by you income, as income tax and capital gains tax payable are mutually exclusive.

[asdfvcx]

This year, I have made money (capital gain). How much will I have to pay? Is my income from my day job a factor?
Any links?
Capital gains are taxed at a 50% inclusion rate. Meaning if you made $5000 in capital gains, you will be taxed on $2500. So for income tax purposes the effect of a $5000 capital gain, would be the same as if you earned $2500 additional salary at your job.

I file my own income tax return every year...will my losses from last year offset my gain from this year?
Yes, your letter of assessment you received after filing last year's taxes, will clearly indicate the amount of unused capital losses you have so far accumulated.

[guy312]

Are capital losses from previous years accumulative/retained? ie. can I use my capital loss from 2008 to offset gains in 2010 as well (and even past that ie. 2020)?

I don't recall recording my capital loss anywhere in my tax return last year. This won't be a problem will it?

I have tried to find official links from the CRA but had no luck...links (with a FAQ) would be helpful.

thanks again...you guys are very helpful :)

PS: 50% tax on capital gains?!?! @#$%@#! Is it that high in the US too?

[LondonTown]

I beleive that you can carry losses forward 7 years.

[tamper]

Capital losses can be carried forward to cancel gains for years. (They can also be used to cancel gains from previous 3 years but since you're just starting you won't have any of those.)

You misunderstood what he was saying about capital gains taxes. The tax on gains isn't 50%: You include 50% of what you make on capital gains as income and that portion is taxed at your marginal rate.

Say you made 20,000 on trading stocks.

You must declare 10,000 in income

The 10000 is taxed at your marginal tax rate (lets pretend its 28%). So you pay 2800 in income tax on your 20k of profits. SO yes your regular income will play a role in the rate.

[The Ivory Actuary]

PS: 50% tax on capital gains?!?! @#$%@#! Is it that high in the US too?

No. You pay tax on 50% of your capital gains. If your marginal tax rate is 40%, you end up paying 20% tax on your capital gains.

[asdfvcx]

Are capital losses from previous years accumulative/retained? ie. can I use my capital loss from 2008 to offset gains in 2010 as well (and even past that ie. 2020)?
Yes.

I don't recall recording my capital loss anywhere in my tax return last year. This won't be a problem will it?
Yes, it will be. If you are sure you didn't, then you will have to file an amendment to your 2008 tax return to inform CRA of your capital losses. Only then will use be able to use the losses to reduce any capital gains.


I have tried to find official links from the CRA but had no luck...links (with a FAQ) would be helpful.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/clc-rprt/menu-eng.html


PS: 50% tax on capital gains?!?!
No, that's not what I said. I said the inclusion rate is 50%.

In my above example, a $5000 capital gain is taxed the same as a $2500 increase in salary. So say you get a raise of about $2500. For a lot of people this will result in them pay an extra $1000 in tax.

Meaning in this example if a person got a $5000 capital gain, then they would only pay $1000 in tax and keep $4000.

Of course your own numbers are going to depend on the tax bracket you are in.



PS: I'm not trying to be rude and this is more for the information of others who might be reading this. People really need to understand the tax rules and ask their questions before they start investing. Way too many people on this forum only start asking the tax questions after the fact.

[Wing Nut]

I beleive that you can carry losses forward 7 years.

No, they can be carried forward indefinitely.

[guy312]

thanks to all that replied...

Next question...which form has the summary of my capital gains/losses? T__ form? I can request one of those forms for previous years from my brokerage firm right?

[big_canuck]

thanks to all that replied...

Next question...which form has the summary of my capital gains/losses? T__ form? I can request one of those forms for previous years from my brokerage firm right?

There's no T form that gives you that number - you have to calculate it yourself. Your brokerage firm will be able to provide you with a trading summary though - so you can calculate it yourself.

You'll also have to calculate any 'adjusted cost balance' if you bought/sold at more than 1 price as well as if there was any return of capital or DRIP involved.

[guy312]

I have to calculate that myself?!?! I place more than 50 trades a month!

Any links with a walkthrough or sample of what I will need to do?

[sjweyman]

I have to calculate that myself?!?! I place more than 50 trades a month!

Any links with a walkthrough or sample of what I will need to do?

Really makes you not want to trade much doesn't it?! I try to do most of my trading inside of my RRSP to avoid all the tax work involved.

I'm sure the really active traders have a good system with their brokerage, software to help them out with it, or use a good accountant. Unfortunately, I personally don't have any tips to offer you though because I just avoid it as much as possible myself.

[sachit64]

Working at an accounting firm, come tax season, I do taxes for MANY clients that invest. I'd say only 15% or so keep track of their ACB themselves.

Just call up your investment broker and ask for a "Gain/Loss Report". They'll summarize the proceeds and gain. Sometimes you'll have to calculate the extra column to know the cost. (Some brokers include that column).

[guessguy]

I have a question along the similar lines on taxes.
If I have no employment income and all my income is generated through investments, will I be paying capital gains tax or income tax?
How will this be reported for this years tax returns?

[rfdrfd]

Here's what you do. I do my taxes via paper, so I see exactly where each number goes where.

You all have to write up a Schedule 3:

http://www.cra-arc.gc.ca/E/pbg/tf/5000-s3/README.html

On Schedule 3, look at the top heading row and you report your stocks gains and losses on Section 3.

Set up an Excel Spreadsheet following the headings you see at the top:
(1) Year of acquisition (2) Proceeds of Disposition
(3) ..... (4).... (5)....

The total of that (net total), so that could be a negative (if you have a net loss in 2008) or positive (net gain in 2008) becomes Line 132.

Then write that number on Sch 3 - Line 132.

Then continue looking down the Schedule 3. Add all those above to Line 191, then Line 197 (probably same amount).

Then follow what Sch 3 says, to get to Line 199. Multiply Line 197 by 50% then write that number as Line 199.

As it says, report this number (Line 199) to Line 127 of your T1 Return.


If this number is a negative, when CRA sends your Assessment Summary after you file your taxes, it will state that you have a net loss of $12,000 to offset any future gains.

Or you can refile your taxes to get back some taxes for gains you had up to 3 yrs ago. See website. I don't do this, because its a pain in the butt. Because I'm pretty sure (i hope) I will gain a profit in stocks in the future SOMETIME!! Gee, I certainly hope so.

[rfdrfd]

I have a question along the similar lines on taxes.
If I have no employment income and all my income is generated through investments, will I be paying capital gains tax or income tax?
How will this be reported for this years tax returns?

Complete Schedule 3 and your questions will be answered.

Answer to your question:

50% of your capital gains becomes your income...., then that income number gets taxed at your tax bracket (Fed and Provincial).

[rfdrfd]

I have to calculate that myself?!?! I place more than 50 trades a month!

Any links with a walkthrough or sample of what I will need to do?

Yes, you have to track your own. Look at Schedule 3 (headings) and just set up an Excel sheet for that.

Really makes you not want to trade much doesn't it?! I try to do most of my trading inside of my RRSP to avoid all the tax work involved.

I'm sure the really active traders have a good system with their brokerage, software to help them out with it, or use a good accountant. Unfortunately, I personally don't have any tips to offer you though because I just avoid it as much as possible myself.


One thing you may know or not, if you have a capital loss (which we all will lose someday in stocks), if it is inside RRSP, you cannot offset the gains for taxes. Yes, inside RRSP, you do not pay taxes, but.

If you loss was outside RRSP, you can offset any gains first, then that (50%) becomes income then gets taxed.

So, in a way, your loss still helped you in someway; when it is outside RRSP.

Inside RRSP, that loss is wasted. Did nothing else for you.

[AllWheelDrift]

Inside RRSP, that loss is wasted. Did nothing else for you.
Actually, it avoids taxes when withdrawing, since you'll have less to withdraw. Basically, a loss inside an RRSP offsets taxes on gains the same way a loss in an unregistered account does. Now in the case of a TFSA, the loss really is wasted.

[rfdrfd]

Actually, it avoids taxes when withdrawing, since you'll have less to withdraw. Basically, a loss inside an RRSP offsets taxes on gains the same way a loss in an unregistered account does. Now in the case of a TFSA, the loss really is wasted.

Yes, but....

When you need the money to use, you have to withdraw it now, and get taxed higher than when you put it in. Because, one almost can assume, each year, your salary gets higher than the one before.

"it avoids taxes when withdrawing"... I wouldn't consider that, because you have LESS $$$ to withdraw from to begin with, since you lost it! hehe

[sidseven]

I have to calculate that myself?!?! I place more than 50 trades a month!

Any links with a walkthrough or sample of what I will need to do?

Your brokerage firm should give you an end of year statement will all of your trades tallied, but I also keep track on a spreadsheet myself- it's a good habit to get into, I think, especially if you're trading a lot.

[AllWheelDrift]

Yes, but....

When you need the money to use, you have to withdraw it now, and get taxed higher than when you put it in. Because, one almost can assume, each year, your salary gets higher than the one before.
I agree, but I don't see how this is in any way relevant to what I said.
"it avoids taxes when withdrawing"... I wouldn't consider that, because you have LESS $$$ to withdraw from to begin with, since you lost it! hehe
But that's no different than the capital loss outside of the RRSP which you can use to offset future gains. The only reason you can reduce taxes in the future is because you have a loss in the present. RRSP makes you wait longer before you can use the loss, but that's offset by the fact that any taxes on gains are defered as well.

I used to think as well that a capital loss inside an RRSP was significantly worse than a capital loss in an unregistered account, but since then I've concluded it's not all that different. Yes, if your marginal tax rate is lower at retirement than when you experienced the loss it is worse. Also, if you consider the theoretical maximum value of your RRSP, the loss destroys some tax defered room. Still, it's not as big a deal as you make it out to be.

Like I said, a TFSA is where you really want to avoid any capital loss because it has a double whammy of not being able to offset taxes and destroying room inside your TFSA.

[Sanchez]

Like I said, a TFSA is where you really want to avoid any capital loss because it has a double whammy of not being able to offset taxes and destroying room inside your TFSA.

This is interesting and counter to my intuition that it would be the same as an RRSP in the case that MTR in = MTR out, which for most metrics makes the TFSA and the RRSP quite similar. I will have to think about it in detail a bit later.

[AllWheelDrift]

This is interesting and counter to my intuition that it would be the same as an RRSP in the case that MTR in = MTR out, which for most metrics makes the TFSA and the RRSP quite similar. I will have to think about it in detail a bit later.
Well, if MTR in = MTR out it still is a wash. Of course, if you lose enough in an RRSP, it almost certainly will affect your MTR on the way out. :lol:

Also, while you lose room in both cases, the extra flexibility and more limited contribution room of a TSFA means destroying room in it has more of a negative impact.

[mr_raider]

Complete Schedule 3 and your questions will be answered.

Answer to your question:

50% of your capital gains becomes your income...., then that income number gets taxed at your tax bracket (Fed and Provincial).

Doesn't he become subject to alternative minimum tax at some point?