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What is excessive trading and other tfsa risk questions re: taxation
April 13, 2023
10:04 am
Norman1
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Whether or not business losses in a TFSA can be deducted against other taxpayer income is irrelevant.

Taxpayers are free to choose how their business is organized. If a taxpayer is foolish enough to chose to conduct a money losing business inside a TFSA trust, then that's too bad for the taxpayer. Just like it is too bad if the taxpayer chose to do the same in a corporation instead of in a sole proprietorship.

April 13, 2023
10:41 am
savemoresaveoften
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I will just conclude Canada's tax system is the most complex and worst to implement in the world. Lets just have 18% flat tax on all income and be done with it, get rid of all these stupid RRSP, TFSA, FTHB blah blah. Get rid of all welfare too and replace with universal min. income, and make that 18% taxable too.
Also no more discrimination against weathly seniors via OAS roll back, GIS, manadatory RRSP withdrawal, RRIF conversion and the like.

April 13, 2023
12:20 pm
Bill
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Norman1, your post 60 quotes indicate that trading in securities "could" constitute carrying on a business, i.e. they don't say "would", thus the result is security trading could, or count not, depending on the circumstances, constitute carrying on of a business. Hence CRA's 8 elements to making that determination, which Parliament would have known about when bringing in TFSAs. Which the appellant is arguing should not apply to TFSAs.

It's important to note that jurisprudence is ever-evolving, living, it's not something fixed, cast in stone, and it's challenges that accomplish that. And in an age when technology is so different (e.g. a lot less effort is needed to research securities, etc than ever before, not much effort or time to click a few times on a mouse, plus accessible to pros and amateurs alike) it's inevitable changes will happen more frequently, in my view.

There have been many IT Bulletins that have been cancelled, or radically revamped, CRA often has to shake up the way it looks at things in a certain area due to precedent-setting cases. Or the government has to amend legislation when holes spring out (up?).

I recently read a Federal Court case where a Tax Court judge had disagreed with the long-standing view of CRA (that had been upheld by other Tax Court judges over the decades) that braces and the orthodontist's services of fitting them, putting them in, etc are part of one, unified transaction for HST purposes (this judge said they were separate, and Parliament had meant them to be from day one of GST, CRA has interpreted wrongly), and the FCA upheld that Tax Court decision. CRA had appealed their Tax Court defeat to Federal Court and they lost again, now they have to go back and re-jig their policies, etc, in this area, I assume, as Federal Court of Appeal is the last stop (Supreme Court won't hear a case like this).

April 14, 2023
11:25 am
RetirEd
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savemoresaveoften: You've just reiterated the long-standing dreams of far-right demands for a tax system making the rich richer and everyone else poorer. Let's face it, the vast majority of citizens would be worse off, and a lot of scaremongering and deception would be needed to get voters to opt for such a regime.
RetirEd

RetirEd

April 14, 2023
12:10 pm
savemoresaveoften
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RetirEd said
savemoresaveoften: You've just reiterated the long-standing dreams of far-right demands for a tax system making the rich richer and everyone else poorer. Let's face it, the vast majority of citizens would be worse off, and a lot of scaremongering and deception would be needed to get voters to opt for such a regime.
RetirEd  

Well it depends whether one wants a good productive system that rewards hard working and risk takers,, or a system that does easy handout of welfare. Of course voters vote for the second as who doesn’t want a free lunch….

April 15, 2023
8:27 am
Norman1
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Bill said
Norman1, your post 60 quotes indicate that trading in securities "could" constitute carrying on a business, i.e. they don't say "would", thus the result is security trading could, or count not, depending on the circumstances, constitute carrying on of a business. Hence CRA's 8 elements to making that determination, which Parliament would have known about when bringing in TFSAs. Which the appellant is arguing should not apply to TFSAs.

That's not the case.

  1. "Trading in securities" when it refers to buying and selling that is dealing, in contrast to "investing in securities", has always been carrying on a business.
  2. "Trading in securities", when it refers to just the buying and selling, may or may not be carrying on a business.

One needs to look at the context to see what the phrase is referring to. In the material from the government quoted in my post, the phrase refers to #2 and not #1.

It's important to note that jurisprudence is ever-evolving, living, it's not something fixed, cast in stone, and it's challenges that accomplish that. And in an age when technology is so different (e.g. a lot less effort is needed to research securities, etc than ever before, not much effort or time to click a few times on a mouse, plus accessible to pros and amateurs alike) it's inevitable changes will happen more frequently, in my view.

Not the case here. Time spent was and is not important. No-one can argue she wasn't running a business with a large number securities transactions and short holding periods just because she only had to spend five minutes a month on the multiple adventures in nature of trade.

You are relying on an erroneous interpretation of the decision that was published in the Toronto Star.

What the judge said was this:

[81] Applying the law to the facts, the Appellant’s income from carrying on a business of trading qualified investments is subject to tax under subsection 146.2(6) for each of the taxation years reassessed by the Minister. As directed by Mr. Ahamed, the Appellant [as Trustee of the Mr. Ahamed's TFSA trust] traded frequently, had an extensive history of buying and selling shares that were mostly speculative in nature, and owned the shares for short periods. In light of Mr. Ahamed’s knowledge and experience in the securities market as a professional investment advisor, and the considerable time he spent researching securities markets, there can be no doubt that the Appellant carried on a business of trading qualified investments for each of the taxation years at issue.

The "extensive history of buying and selling shares that were mostly speculative in nature, and owned the shares for short periods" (three of the factors) was enough to establish that, on a balance of probabilities, a business of trading qualified investments was being conducted in the TFSA trust.

In addition, "Mr. Ahamed’s knowledge and experience in the securities market as a professional investment advisor" and "the considerable time he spent researching securities markets" (two more of the factors) pushed the evidence past the beyond-reasonable-doubt threshold ("there can be no doubt").

Judge concluded a business was being conducted. The facts supporting the conclusion not only met the balance-of-probability-hurdle required of a civil Tax Court case but also the beyond-reasonable-doubt hurdle of a criminal case had running a business in a TFSA been a criminal offense.

April 15, 2023
10:03 am
Bill
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I don't disagree that "dealing" in securities is carrying on a business. Not sure what the definition of "dealing" is but regardless there is no reference in the case to "dealing in securities".

Time spent is one of the 8 elements ("(e) time spent researching securities markets and potential purchases).

I agree with everything you're saying, i.e. that the judge made the right decision (even though there's lack of detail re "frequently", "extensive", "short", "considerably", etc) it appears, based on using the traditional 8-element test.

My point is that the appellant is taking it to the Federal Court not because the 8-element test came to the wrong conclusion but for another reason, i.e. that that traditional test and jurisprudence supporting it re carrying on a business are not applicable, relevant, to activities carried on within a registered TFSA plan, mainly due to the special constraints imposed on registered plans not imposed on regular businesses outside of registered plans. The Tax Court judge did a fair bit of consideration of the background re TFSAs, RRSPs, etc and ended up not agreeing, he in fact ended up using the traditional 8 elements instead of the new, alternative test suggested by the appellant. So they're going to Federal Court to see if their suggestion for their new method re cob inside a TFSA finds merit there. Is my understanding after reading the case itself (no reliance on the Star).

April 15, 2023
11:17 am
savemoresaveoften
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Bill said
I don't disagree that "dealing" in securities is carrying on a business. Not sure what the definition of "dealing" is but regardless there is no reference in the case to "dealing in securities".

Time spent is one of the 8 elements ("(e) time spent researching securities markets and potential purchases).

I agree with everything you're saying, i.e. that the judge made the right decision (even though there's lack of detail re "frequently", "extensive", "short", "considerably", etc) it appears, based on using the traditional 8-element test.

My point is that the appellant is taking it to the Federal Court not because the 8-element test came to the wrong conclusion but for another reason, i.e. that that traditional test and jurisprudence supporting it re carrying on a business are not applicable, relevant, to activities carried on within a registered TFSA plan, mainly due to the special constraints imposed on registered plans not imposed on regular businesses outside of registered plans. The Tax Court judge did a fair bit of consideration of the background re TFSAs, RRSPs, etc and ended up not agreeing, he in fact ended up using the traditional 8 elements instead of the new, alternative test suggested by the appellant. So they're going to Federal Court to see if their suggestion for their new method re cob inside a TFSA finds merit there. Is my understanding after reading the case itself (no reliance on the Star).  

The bottom line is whether it’s a tax-avoidance tactics. But then isn’t that the whole purpose of a ‘tax free’ account ? Again I will never with why it’s relevant whether one is a professional or not in investment knowledge.
To me, it’s a borderline ‘head I win, tail u lose’ situation from the CRA’s perspective.

April 15, 2023
12:31 pm
Bill
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Tax avoidance is ok, tax evasion is not. Unless you run afoul of the general anti-avoidance rules, which is a whole other kettle of fish.

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