Capital Gains in a TFSA account

[Aryan]

I have purchased some stocks (4 different tickers) in 2020. Of them I sold only one. These transactions are all dome in a TFSA account.

Questions:

1. Do I have to report the capital gains or losses for these since they are done in TFSA?

2. If I must report I understand that I should report only the 1 ticker that I sold since the others are not sold yet. Is this understanding correct?

 

[AltaRed]

There is no taxation (and no reporting of transactions) of any kind within a TFSA account. That is why it is called 'tax free'.

[Aryan]

1 hour ago, AltaRed said:

There is no taxation (and no reporting of transactions) of any kind within a TFSA account. That is why it is called 'tax free'.

Hello, Thanks a lot for your reply. I understand that it seems obvious since the name is Tax Free savings account. But I want to be sure since I am doing it first time.

Is there a limit to how much capital gain can be accrued before it becomes taxable? Lets say for example someone makes 100000 by trading in their TFSA. Is it still tax free?

 

Thanks in advance.

[Curmudgeon]

The limit is not on the gain but how much trading you do. If you are constantly trading, the CRA can declare the account an investment business and tax returns as income. No hard and fast trading rule, it is up to the CRA and the courts.

[Aryan]

12 minutes ago, Curmudgeon said:

The limit is not on the gain but how much trading you do. If you are constantly trading, the CRA can declare the account an investment business and tax returns as income. No hard and fast trading rule, it is up to the CRA and the courts.

Thanks! So does that mean I should not report these transactions in my tax returns?

I don't do a lot of trading but what is a definite way of knowing this, in case, I decide to do more trading? As in how do I decide if I should be reporting the capital gains from the TFSA or not?

 

you mention "CRA can declare the account as an investment business account" how can one know that this is the case with their account.

[Aryan]

1 minute ago, Aryan said:

Thanks! So does that mean I should not report these transactions in my tax returns?

I don't do a lot of trading but what is a definite way of knowing this, in case, I decide to do more trading? As in how do I decide if I should be reporting the capital gains from the TFSA or not?

 

you mention "CRA can declare the account as an investment business account" how can one know that this is the case with their account.

When I say "So does that mean I should not report these transactions in my tax returns?" I mean: Should I declare the capital gain and there is a way to say that this is from a TFSA and hence tax free OR this should not be mentioned in the return file at all?

[Curmudgeon]

Don't report any gains or investment income, it's tax free. For tax purposes, the TFSA doesn't exist as long as you follow the rules on contributions. To avoid the active trading rule, don't use a TFSA for day trading, for example. It is after all a savings account. A couple of trades a day, probably more, would be safe. Just don't spend hours every day trading or the CRA will declare it a business.

[AltaRed]

As posted by Curmudgeon, there is nothing to be reported on tax returns as regards transactions in a TFSA. Nothing at all.  The issue that has arisen in the past was some people (professionals) started trading their TFSAs  like professional day traders, and they ran up their TFSA values to significantly large values which attracted the attention of CRA. When they investigated, it wasn't the value of the TFSA that turned out to be the issue. It was HOW the TFSA was used to get to high values. CRA declared it being run as a 'business' and a business cannot have a TFSA. So everything was declared an invalid TFSA and everything became taxable business income.

The average amateur taxpayer, even as an active trader, is not likely to run foul of their TFSA being declared business income. Firstly, it would need to be a focus of one's effort for 'self-employment type' income and the taxpayer would likely have to possess some credentials, experience or education or both, in applying techniques and tools to spin the TFSA into  a successful business

[Aryan]

1 minute ago, AltaRed said:

As posted by Curmudgeon, there is nothing to be reported on tax returns as regards transactions in a TFSA. Nothing at all.  The issue that has arisen in the past was some people (professionals) started trading their TFSAs  like professional day traders, and they ran up their TFSA values to significantly large values which attracted the attention of CRA. When they investigated, it wasn't the value of the TFSA that turned out to be the issue. It was HOW the TFSA was used to get to high values. CRA declared it being run as a 'business' and a business cannot have a TFSA. So everything was declared an invalid TFSA and everything became taxable business income.

The average amateur taxpayer, even as an active trader, is not likely to run foul of their TFSA being declared business income. Firstly, it would need to be a focus of one's effort for 'self-employment type' income and the taxpayer would likely have to possess some credentials, experience or education or both, in applying techniques and tools to spin the TFSA into  a successful business

Thanks for the info!