Day trading involves buying and selling stocks and other securities on a regular basis, generally within the same day. According to AskMen.com, a financial resource website, a day trader is an individual who buys and sells within a brokerage firm account to benefit from market fluctuation. Day trading is regulated by the Canadian government, which sets trade rules and establishes a process for documenting income and losses for tax purposes.
Canada treats profits made from day trading as business income, not capital gains. This means profits, reported as gains, are subject to taxation. Losses are deductible. Hence, a day trader can subtract all losses from another income source to reduce the amount of taxes he owes. According to Canada Banks, a conglomeration of financial institutions based in Canada, the government’s tax officers scrutinize the conduct and intent of a day trader and decide how to assess their activities--either as capita gains or trading income.
Designated Security Accounts
It’s possible for a day trader to have short- and long-term investments. Retirement accounts often have long-term investments. Securities in a retirement account frequently are traded less often than capital transactions. For this reason, Canada requires the designation of different accounts to hold different types of securities in order to keep activities associated with each one separate for taxation reasons.
Lacks Margin Requirements
Canada day-trade rules are not as strict when it comes to margin requirements. In the United States, day traders must conform to margin requirements that state a pattern day trader must keep at least $25,000 of equity in their securities account on any day that she makes day trades. According to FINRA investors, an investment company, a “pattern day trader” is someone who buys and sells a stock on the same day with four or more transactions in five business days, which constitutes more than 6 percent of her complete trading activity during that period of time. When account equities are less than the margin requirement of $25,000, then the pattern day trader is unable to engage in transactions until the amount reaches the required limit. Canada does not have equities limits for day traders.