7 Day Trading Rules in Canada | Simplified Investing 101 (2024)

7 Day Trading Rules in Canada | Simplified Investing 101 (1)

Day trading stocks, currencies, and other assets have become popular, especially since trading can be done online in the comfort of your home. Earning full-time income through day trading instead of a regular day job is incredibly appealing.

However, full-time income from day trading is hard to achieve. Most day traders lose money.

Canada and the United States have different rules that apply to day traders. Taxes from day trading income is also different compared to capital gains.

1. PDT Rule does not apply to Day Traders in Canada

PDT rule does not apply in Canada. Traders in Canada generally have no limit on the number of trades, even with less than $25,000. PDT (Pattern Day Trading) rule applies to investment platforms in the United States while on a margin account.

Traders in Canada can trade US stocks, ETFs, and options with no limit in a margin account, even with a small account balance.

PDT rule may apply to trading platforms in the United States where four or more day trades in a week are not allowed for margin accounts with less than $25,000.

2. Day Trading is Legal in Canada

Day trading is legal in Canada. Day trading stocks, ETFs, options, forex, and other assets are allowed in Canada. However, day trading income is taxable, and the investing platform has to be regulated by the IIROC (Investment Industry Regulatory Organization of Canada).

Also, personal identification is required to comply with tax laws for the CRA. Financial Institutions are often required by law to ask for these information before a person can open a trading account.

From the members list page of iiroc.ca, some of the IIROC-regulated dealers are TD Securities Inc., RBC Direct Investing Inc., and Questrade, Inc.

How much do you need for day trading in Canada?

There is no minimum amount required to start day trading in Canada. Each investing platform may have different account minimums. Most trading platforms in Canada require $1,000 or less to open a trading account.

7 Day Trading Rules in Canada | Simplified Investing 101 (2)7 Day Trading Rules in Canada | Simplified Investing 101 (3)

3. Day Trading Income is Taxable in Canada

Day trading income in Canada is fully taxable at your marginal tax rate, similar to employment income. On the other hand, only half (50%) of capital gains are taxable. Losses from day trading can be tax deductible against employment income. Day trading expenses can also be tax deductible.

Day trading income is classified as business income for tax purposes. Stocks (and other assets) are treated as inventory, similar to any business that holds an inventory of goods. Gains are taxable once the assets (like stocks) are sold.

Also, US dollar income/losses have to be calculated in terms of Canadian dollars for tax purposes.

Day Trading vs Capital Gains Taxes (10,000 in Income)

Business Income
(ex. Day Trading)
Employment IncomeCapital Gains
(50% Taxable)
Income/Gains$10,000$10,000$10,000
Taxable Income$10,000$10,000$5,000
(50% x $10,000)
Taxes (example 30%)*$3,000$3,000$1,500
After-Tax Income$7,000$7,000$8,500

*Tax rate is only an example. A combined marginal tax rate of around 30% applies to the average income in Canada of about $60,000. Your tax rate may differ. Combined provincial and federal marginal tax rates in Canada typically range from 20% to 55%.

4. Day Trading is often Taxable as Business Income

Capital gains are advantageous since only half are taxable while business income is fully taxable. However, day trading will often be taxable as business income.

Business Income (Day Trading) vs Capital Gains Taxes

These are the most common factors the CRA evaluates to classify between business income or capital gains. From the criteria below, day trading will likely be taxable as business income.

  • Trading Frequency
  • Time an asset is held before selling
  • How substantial is the trading income compared to total income
  • Amount of time spent on trading and preparations

Trading Frequency – Trading 50 times or more in a month will likely be classified as business income while ten times or fewer trades in a month will likely lean more towards capital gains.

Holding assets for only a couple of hours to a day every time is a strong case for trading to be classified as business income while holding assets for months weighs more towards capital gains.

Also, a total taxable income (from employment income and other sources) of $100,000, but a small portion of $4,000 (4% from day trading) comes from trading will likely be a case for capital gains. On the other hand, $80,000 (80%) of trading income will likely count as business income since trading income is substantial compared to total income.

How do day traders pay taxes in Canada?

Day trading income has to be filed as business income when filing personal tax returns in Canada. In case you are incorporated, corporate tax returns have to be filed for day trading income. Day trading expenses will likely be tax deductible.

Stock Investing Platforms in Canada

Investing PlatformCommission Fees
(Stock Buy or Sell Trade)
RBC Direct Investing$9.95 per trade

(Lower pricing of $6.95 for active traders,
150+ trades every 3 months)

TD Direct Investing$9.99 per trade

(Lower pricing of $7.00 for active traders,
150+ trades every 3 months)

Wealthsimple Trade$0 free commission fees for CAD stocks
1.50% exchange rate fee for US stock trades
QuestradeAround $5 for most trades

(Lower pricing available for active traders)

Wealthsimple Tutorial – How to Trade Stocks

Questrade – How to Buy and Sell Stocks

5. Day Trading in a TFSA is not allowed

Day trading in a TFSA is generally not allowed. Day trading profits are classified as business income for tax purposes. While trading platforms do not impose trading limits on a TFSA, CRA (Canada Revenue Agency) audits and reviews the trades on a TFSA account.

Should the CRA audit a TFSA account and classify profits should’ve been business income (day trading), CRA can penalize you and require you to pay the taxes from the business income on TFSA.

Day trading in a TFSA is not optimal since gains will be taxed anyways during CRA audits. Losses on a TFSA account are not tax deductible. On the other hand, losses from day trading (business income) on a margin or personal accounts are tax deductible.

When you trade 10 times a day for a week on a TFSA and lost money, the losses will not be deductible. On the other hand, making money by day trading a lot of times in a TFSA may be audited by the CRA and classified as a taxable income.

How often can you trade in a TFSA?

CRA does not have a specific number of trades to classify what constitutes business income (day trading). With that said, trading five or more times every day in a TFSA will likely be business income. At the same time, rebalancing a portfolio once in a while by trading several times in a day is allowed in a TFSA.

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Day Trading Profits in TFSA

When the CRA categorize a TFSA account as conducting business activity (day trading), CRA will tax profits as business income. In top of the taxes owed, some interests may be charged and penalties are possible.

TFSA (Tax Free Savings Account)

  • Investment income from stocks (and other assets) inside a TFSA is tax-free
  • Deposits to TFSA are limited up to your TFSA limit. The TFSA limit for 2022 is $6,000. If you are investing more than $6,000, you may want to consider a non-registered account or check your TFSA limit on your CRA account in case you have unused TFSA limit from past years,
  • Day trading as a business is not allowed on TFSA.
  • You can deposit and withdraw cash anytime from a TFSA.

6. No Minimum Requirement to Start Day Trading in Canada

Contrary to popular belief that substantial amounts of money are required to start day trading, most platforms in Canada require $1,000 or less to open a trading account.

Also, starting with a small amount of capital may be better to acquire experience since losing money is very likely when trading for the first time. Eventually, day traders can always add more capital when they become more comfortable taking risks and gained experience.

7. Tax Deductions from Day Trading Losses have no limit in Canada

The United States allows up to $3,000 in capital losses to be deducted from normal income.

On the other hand, business losses (day trading) have no limit on the amount of tax deductions towards employment income.

However, capital losses in Canada can only be deducted against capital gains. Only half (50%) of capital gains are taxable while business and employment income are fully taxable. As such, capital losses are not tax deductible towards employment income.

As a seasoned financial expert with a deep understanding of day trading, I can attest to the nuances and challenges that come with this form of active trading. My extensive experience in financial markets, coupled with a robust knowledge base, allows me to shed light on the intricacies mentioned in the provided article.

1. PDT Rule and Regional Differences:

The Pattern Day Trading (PDT) rule, a regulation in the United States, limits the number of day trades for accounts with less than $25,000. However, in Canada, no such rule applies. Traders in Canada have the flexibility to engage in as many trades as they want, even with an account balance below $25,000. This divergence is crucial for those considering day trading activities on either side of the border.

2. Legality and Taxation in Canada:

Day trading is legal in Canada, covering various assets such as stocks, ETFs, options, and forex. The key distinction lies in the taxation of day trading income, which is fully taxable at the trader's marginal tax rate, similar to employment income. The article rightly emphasizes the importance of using IIROC-regulated platforms like TD Securities Inc., RBC Direct Investing Inc., and Questrade, Inc., ensuring compliance with tax laws.

3. Tax Implications of Day Trading in Canada:

The classification of day trading income as business income, fully taxable, sets it apart from the 50% taxable capital gains. The article astutely discusses the calculation of US dollar income/losses in terms of Canadian dollars for tax purposes. The provided tax comparison chart further illustrates the varying tax implications between day trading income, employment income, and capital gains.

4. Classification of Day Trading Income:

The factors considered by the CRA (Canada Revenue Agency) in distinguishing between business income and capital gains are well-explained. Trading frequency, holding duration, the proportion of trading income to total income, and the overall time spent on trading activities all play a crucial role in this determination.

5. Day Trading in a TFSA:

The article aptly clarifies that day trading in a Tax-Free Savings Account (TFSA) is generally not allowed in Canada. Profits from day trading within a TFSA may be subject to taxation, and losses are not tax-deductible. The potential penalties and interests in case of misclassification underscore the importance of adhering to the regulations surrounding TFSA accounts.

6. Minimum Requirements for Day Trading in Canada:

Contrary to misconceptions, the article emphasizes that there is no minimum amount required to start day trading in Canada. Most platforms accept $1,000 or less to open a trading account, allowing individuals to gain experience with a smaller capital before potentially scaling up.

7. Tax Deductions and Losses in Canada:

The article brings attention to the distinction between tax regulations in the United States and Canada concerning day trading losses. In Canada, business losses (day trading) have no limit on tax deductions against employment income, providing more flexibility compared to the $3,000 limit in the United States.

In summary, the comprehensive coverage of day trading regulations, taxation, and best practices in Canada in the provided article aligns with my expertise in financial markets. Traders should carefully consider these factors to navigate the complexities of day trading and optimize their financial outcomes.

7 Day Trading Rules in Canada | Simplified Investing 101 (2024)
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