How taxes apply to trading income and profits

For every progressive economy, the government requires people to pay a percentage of their earnings and profits in taxes. These collated taxes are then used to run the economy properly.

There are different categories of taxes which are required to be paid by the people in Canada for trading income and profits. These are specific categories that individuals fall into. These taxes also have a period where they are to be paid to the federal purpose.

Tax responsibilities

Individuals are to pay tax according to their day trade task rule. The category to which your trade falls underdetermines the amount of money in tax you would have to pay. Late payment or non-full payment definitely attracts the law to your doorstep. According to the income tax act, tax defaulters are punished with a prison sentence of approximately five years’ imprisonment if found guilty. The task, of course, must still be paid.

Categories of taxes in Canada

For the traders in Canada, the taxes expected by the government are distinctly categorized into two sets. It could either be the Capital gain or profit tax or Business/Trading income tax.

Capital gain tax

The Capital gain applies to the traders that trade just outside the Registered Retirement Savings Plan (RRSP) or the Registered Retirement Income Fund (RRIF), tour profit made on your business is possibly treated as your capital profit or gain.

The capital gain or profit emanates with a characteristic advantage which is that the capital profit is only taxed at 50% of the marginal rate. Also, trading fees exist without tax deductible under the capital gain rule. This rule is suitable for long-term investment.

Disadvantages of capital gain tax

The 30-days rule as it is usually referred to states that if a trader, who could be the company, spouse, or the investor, reclaims an asset or a similar asset as that which was sold in about 30-days, then they won’t be able to claim the money loss for the purpose of tax.

Business/trading income tax

This allows a business close out its income at the close of each trading day. The income is taxed at a marginal rate of total earning which will be viewed as a business/trading income. Since the major target is to make a profit however small, the motivation behind doing the business is what is used to affirm your position as a business income trader.

Advantages of business income tax

Just like the capital gain tax, the business income tax also has its own differentiating advantages. Part of these advantages are:

1.Loss reduction.Being a day trader, there is the opportunity of removing the losses against another source of income. The losses acquired can be offset against generated revenues. This will most likely reduce the tax.

2.Claim expenses. A trader can also be able to claim the acquired expenses which are related to trading activities. This will be paid on presentation of relevant receipts.

The tax system is effective in Canada. The acquired taxes are used for the growth and development of the Canadian economy. The important thing is to fully understand on which end of the spectrum one’s business lie so appropriate taxes are paid.