Can you do day trading in TFSA, Canada?

Short Answer

No, you are not allowed to do day-trading within a Tax-free savings account in Canada. TFSA is an investment account and not a trading account as such.

Detailed Answer

TFSA Canada

Tax-free savings account is a type of registered investment account in Canada, where you can own cash, shares, debt instruments, guaranteed investment certificates, ETFs or managed funds. This account is completely exempt from tax and can be opened and used by any Canadian citizen or resident who has reached 18 years of age.

How to open a TFSA in Canada?

Opening a TFSA is very similar to opening a bank account in Canada. You must submit your Social Insurance Number (SIN) and two other identification proofs (preferably issued by the government of Canada) to validate your name, age and address.

You can open a TFSA with a financial institution, bank, insurance providers, credit unions or a trust. You can also open a TFSA online with trading platform providers.

Types of TFSAs

TFSA are of two types which are as follows:

1. Automated TFSA:

First is automated TFSA account, where a robot advisor assesses your investment objective, time frame, and risk appetite to invest your funds in an investment option that it deems to be your perfect fit.

2. Self-directed TFSA

Secondly, there is a self-directed TFSA where you can buy and sell shares, based on your research. When you have a self-directed TFSA, how much of buying and selling of shares is too much? Read more.

Can you do day trading in TFSA, Canada?

TFSA as the name suggests is not a savings account, you can invest in financial instruments to grow money. However, it is not a trading account where you can aggressively purchase and sell assets. You are not allowed to do day trading within a TFSA.

Day trading is where a share is purchased and sold within the same day. When you make intra day trades within a TFSA, the Canadian Revenue Agency (CRA) assesses your account as an account conducting business activity within TFSA. Your income will be considered as a business income and will be included in your tax returns, losing its concessional nature.

Although, you do not disclose your gains or income returns within a TFSA in your tax returns, the financial institution with whom you have an account, is expected to disclose your activities to the CRA once a year.

TFSA Trading - Factors considered by CRA

We have listed down the factors that CRA would consider before classifying your account as a business account:

  • Time span of holding an asset
  • Frequency of trades done
  • Objective of the account? Investing or profit making?
  • Units of securities traded
  • Time you spend on doing the trades
  • Your market expertise

Day trading in TFSA, Canada

It was reported that during the pandemic, many young bloods opened TFSA to make trades within.

However, given the concessional nature of tax treatment, there are always terms and conditions attached within such accounts. It is wise to take advice from professional financial planners, auditors, or security lawyers in such matters.

Tagged With: tax free savings accountday trading in tfsatfsa canadatfsa tax exemptionstfsa business incometfsa
Categories: TFSA
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