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Day Trading Rules in Canada

Unlike other types of investing and stock trading, day trading is a practice to hold securities for one trading day only. Even though initially day trading seems stressful and risky, especially when you don’t know much about it. However, knowing about day trading rules Canada and the essential traits that you should have to become a successful day trader can save you in this regard.

Top Day Trading Brokers in Canada

Forex Brokers Min. Deposit Platforms Rating Secure Link
1 FXCC
$100
MT4, MT4 Mobile
MT4 MultiTerminal
4.9/5
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Best New Canadian Broker
2 Fusion Markets
$100
MT4, MT5
Mobile app, DupliTrade
4.8/5
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Best Broker for Beginners
3 BlackBull Markets
$200
MT4, MT5
VPS, API, Mobile app
4.7/5
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True ECN Trading Broker
4 easyMarkets
$100
Web platform, MT4
Mobile app
4.6/5
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Top Trading Apps
5 Avatrade
$100
AvaTradeGO
Web, Desktop, MT4, MT5
4.6/5
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Most Popular Canadian Broker

Day trading rules Canada: What do you need to know about it?

Speculative assets and trading are rising in popularity. People commonly find it highly appealing to earn money from day trading than a regular job. However, it is a vital fact that earning money from day trading consistently is still hard to accomplish. At the same time, people also lose their money in day trading.

Most importantly, the rules of day trading in Canada are different from the ones in the USA. Even more, there is a significant difference in tax structure for capitals and dividends as well for day traders in Canada.

Day trading rules Canada

So, if you want to become a day trader in Canada, you must know these day-trading rules Canada below to understand things better in this regard.

So, here we go:

Day trading with a tax-free saving account

For TFSA, day trading is classified as business income for tax purposes, when CRA audits accounts. However, losses won’t be requested as tax-deductible. So, overall, day trading in TFSA isn’t an optimal choice. There is no limit on how many times you can day trade with TFSA to describe if you are active trading or not. However, trading 5x a day is sure shot day trading in TFSA.

Overall, TFSA accounts are there for saving not optimal for day trading.

Swing trading in a tax-free saving account

By CRA, swing trading is also taxed as business income. Traders commonly hold their stocks for profit or loss. While investors treat these as assets for long-term investment for dividends or growth.

Profits and losses in day trading using a tax-free saving account

As CRA treats TFSA as an account to conduct the business activity, it will tax profit just like a business. Along with regular forex trading Canada taxes, you might have to pay additional interest charges if tax go through after the due date.

Most importantly, losses don’t have tax deductibles in TFSA. However, day trading losses in non-registered accounts can be the business losses. Due to which these will result in tax deductibles.

Is it legal to day trade in Canada?

With an investment dealer, it’s legal to day trade in Canada. The dealer needs to have regulation by IIROC. Even more, personal identification is also essential for tax laws compliance to let CRA audit and confirm that you are paying the right tax amount yearly.

Is the PDT rule still working in Canada?

No, PDT rules don’t apply in Canada. Traders here can trade ETFs, US stocks, and options without even any limit on margin stocks. Even more, there are no minimum requirements, to begin with, day trading in Canada. However, some platforms may have minimum amount restrictions of up to $1000 to get started with day trading.

What is the tax structure for day trading in Canada?

Day trading income here is completely taxable as per the current tax rate. While losses against employment income are tax-deductible in day trading, along with some other expenses.

Even more, filing day trading income for tax laws is just like filing your business income in Canada. Stocks or assets owned will be treated as inventory just like any other business holding inventory in stock. So, a trader has to calculate his overall income and loss for a tax year. Even more, everything needs to be calculated in Canadian dollars for tax payments.

Overall, the tax rate of day trading in Canada varies from person to person based on location, and income. Commonly, a combined 30% tax rate is there for around $60,000 total income. However, the tax will be higher for income higher than this.

While, the lowest tax rate is about 20%, and the highest rate is about 60%. Overall, the total tax will have the calculation on the basis of your overall taxable income.

Saving account and cashback recommendations for Canada

If you want higher interest on your saving accounts in Canada or more cashback on purchasing, then here are some recommendations for you:

  • Neo Financial Savings: 1.30% interest income yearly with no monthly fee and minimum requirements.
  • RBC High-Interest eSavings: 0.05% yearly interest income with no monthly fee and minimum requirements.
  • EQ Bank Savings Plus Account: 1.25% yearly interest income with no monthly fee and minimum requirements.

For cashback:

  • Neo Financial Card: 4% cashback on numerous partner stores with 1% cashback on all other buying items
  • RBC Cash Back Mastercard offers 2% cash back on groceries. 0.50% on other shopping for the first $6,000.
  • Tangerine offers 2% cash back for up to 3 categories of your choice with 0.50% on later shopping items

How to prove your income as a day trader?

Investment dealers will provide you trades summary you’ve done within a tax year. That form is known as T5, which you can submit to CRA if it has good audi. While the account owners will get T5 every February or March.

Here are some of the most prominent trading platforms you must know in Canada:

TD Direct Investing

  • $9.99 flat/ trade for buying or selling Stocks.
  • $9.99 + $1.25/contract/ trade for buying or selling Options.
  • To buy or sell ETFs $9.99/ trade.

Questrade

It’s available online with the same fee as market hours trading.

  • 1 cent per share for buying or selling stocks. While, minimum and max requirements are $4.95, $9.95, respectively.
  • $9.95 + $1.00 per contract for options buying and selling.
  • Buy ETF is free while 1 cent/share for selling.

Final Thoughts

Overall, by knowing the day trading rules Canada, day trading will be a great career option for you. However, being a successful day trader needs some personality traits, tips and tricks, and knowledge of how day trading works. Remember the fact that day trading isn’t the best choice for beginner traders. Instead, the most successful day traders are commonly well-funded, well-educated, and seasoned.