Forex Tax Calculator: Capital Gains vs Business Income

Two ways the CRA can tax your trading

Capital gains: only 50% of a net capital gain is included in income. A $10,000 gain adds $5,000 to taxable income. Capital losses can only offset capital gains — but can be carried back three years or forward indefinitely.

Business income: 100% of the profit is taxable. But business losses can offset any income, including your salary, and non-capital losses can be carried back three years or forward twenty.

Which one applies?

The CRA looks at the facts, including: how frequently you trade and how long you hold positions, your knowledge and experience, the time you spend, whether you use borrowed money, and how you present yourself. Frequent, short-term trading — typical of day trading and most leveraged forex — tends to point to business income.

For speculative foreign-exchange transactions specifically, the CRA's longstanding position (from its former interpretation bulletin on foreign exchange gains and losses) is that individuals may report gains and losses on either income or capital account as long as they're consistent from year to year. Once you choose, stick to it.

Business income from trading can also mean CPP contributions on self-employment earnings. Talk to an accountant who works with traders.

A note on registered accounts

Profits earned inside a TFSA are normally tax-free — but if the CRA concludes you're carrying on a trading business in your TFSA, those profits can be taxed. Leveraged forex and CFDs can't be held in a TFSA or RRSP at all. More in TFSA and RRSP trading rules.