How to incorporate lossesin personal Tax due to Stock trading @ BMO Investorline

Capital gain or loss from stock trading in RRSP account are irrelevant to
your income tax return. Your gain will not be taxed nor can you claim your
loss. As far as I understand any money withdrawn from your RRSP/RRIF
will be taxed as if it is earning income. So I presume you don't
need to keep track of the gain or loss from your stock trading
activities to determine the amount of tax you pay on your RRSP/RRIF
in the future.

As for reporting the stock transactions in your tax return it is indeed a
nightmare. You are required to report gain/loss from stock trading which
means you have to report each and every selling transactions from 2009
as well as the previous buying transactions of the stock you sold.

Magaya said:

I have over 1000 transactions.

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My man, how much commission did you pay last year? You transacted over a 1,000 times and all you have to show for your effort is a loss of $10,000? Report your loss on Schedule 3. With so many transactions, maybe you can argue you are a trader and claim the loss as a 100% ordinary expense deduction.

Magaya said:

can you please eloborate on trader and 100% ordinary expense deduction thing?

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Think carefully before you go this route. Someone who is engaged in the "business" of stock trading must report all their gains and losses on ordinary income account.

Magaya said:

transactions amount....probably well over $10000
Total lost at one point $28000
current loss $8000 and declining

It was my first year after all

can you please eloborate on trader and 100% ordinary expense deduction thing?

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Shake my head...another example for the sorry state of financial literacy.

No wonder some people could never be financially independent.

Don't want to be be mean but exactly what kind of stock were you punting in 2009 when anybody could generate double capital gain by investing any good quality blue-chip stocks? Kingsway Financial (KFS) at TSX?

Simply put, you make the employees who invested money market fund by default in their DC plan last year "feeling good".

BTW, churning in this frequency is a guarantee to wealth destruction.

Rockslinger said:

Think carefully before you go this route. Someone who is engaged in the "business" of stock trading must report all their gains and losses on ordinary income account.

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Listen to the Rock. A taxpayer can elect to be in the business of trading stocks. In that case losses on trading become negative income, and gains become income instead of capital gains (and are taxed at twice the rate). I believe that you can only once in your lifetime file for treating stock losses/gains as income or capital losses/gains.

Capital losses and gains can be carried forward 5 years, and backwards 3 years.

Perhaps start by going to the Canada Revenue Agency website and reading their Interpretation Bulletin IT-479R. that will outline the difference between buying and selling stocks as an individual versus buying and selling stocks as a trader. Guide T4037 may also be useful reading.

I believe that there are other similar bulletiins that will tell you how to handle the capital gains/losses for stocks. I just finished reading RC 4169(E) for Tax Treatment of Mutual Funds for Individuals. It provides sample calculations to explain what is needed. For everything you sold in 2009 you will need to make yourself a spreadsheet and follow each stock through until it is sold.

Cheers

QB7

Magaya said:

Hinz
I simply waited for too long to take advantage of market jump in March till May. Then finally when I got in market there were some scary moments for me and being trigger happy and always married to a computer screen, I behaved like a bull in a chine shop.......of course I know it was my own shop.
Some of the real bad stocks I bought included HNU and PGD. HNU has gone down from $192 to $5 and thats after a 5 to 1 reverse split. PGD dropped to 50% of its value as well. And one day TIM shot up from 0.80 to $2.00 when they annonced opening of their mine. I went in 10000 at $2.11, of course market was waiting for me, right away it dropped to $1.60
I guess you did notice that I mentioned my losses are down to $8k and are declining further.
cheers

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Hmm...don't touch any leveraged ETFs, pennies stocks or anything else listed in TSX-V with a ten-foot pole.

If you have any inclination to punt both ways, you would better off to try in Las Vegas and see some of the popular SP/MPAs here.

Or if you really like small-cap, don't bet your farm on that category. Put aside a portion, say 25% of net worth to invest in small-cap ETF.

Don't get me wrong I do have my investment mistakes but I try every way to mitigate and make less mistakes by genuine, simple diversification over time and that's after you pay down significant debts and enough cash flows.

To be blunt, nobody would sympathize and bail your sorry a** for blowing your hard earn money on speculation when you need to retire by force, say your body is no longer in good shape or disability.

With a 1,000 trades, you should also be aware of the "stop loss" rule. Can't claim aloss on a stock you sold and re-bought within 30 days.

Rockslinger said:

With a 1,000 trades, you should also be aware of the "stop loss" rule. Can't claim aloss on a stock you sold and re-bought within 30 days.

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and if you bought more and sold within 30 days.

In general, the stop-loss rules, the superficial loss rules, and the definition of superficial loss prevent the recognition of a capital loss on a property's disposition until it is disposed of to a non-affiliated person (subsection 40(3.4), subparagraph 40(2)(g)(i), and section 54). These rules apply if a taxpayer acquires a substituted property--the property disposed of or an identical property--within the period that begins 30 days before and ends 30 days after the disposition, and the taxpayer or an affiliated person owns the substituted property at the end of that period.

Magaya said:

But why can't I get a statement form Bank telling me what was net profit or loss in the year as in case of say GICs or FDs?
I hate spread sheets...spread eagles are fine with me though ;-)

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With RBC direct investing a book value of your portfolio is included in the
statement. This book value doesn't really reflect the true number. I won't go
into details to explain why this is the case except to say that unless your portfolio
is managed in a 'closed' account with minimal trading activities this book value
won't be of any use for your tax return.

Not knowing what your stock portfolio is like I can only speak for mine. There is no
way RBC, CIBC or any other banks and brokerage would bother to provide me with any
reasonably accurate estimate of the total yearly gain/loss incurred in my portfolio.
No brokerage would in its right mind would want to create the specific
software needed to monitor the 400-600 stock transactions executed in my
investment account last year. Many of the transactions of individual stocks
to be reported in my tax return involve selling of a chunk of the holding accumulated
over a number of years. To correctly calculate my gain/loss I have to
work out the cost base of the stocks which could depend on various factors. For instance
if it is a resource income trust I have to find out how much cash has been distributed
to the stocks sold in a single transaction is to be reported as capital return in order to
to adjust the purchase price correctly. You get the idea of how nighmarish my job
could be given that most of my positions were accumulated over a long period
incrementally and that I also took my profit/loss over a series of transactions
instead of selling my entire position in one day. There is simply no way my brokerage
or any accountant would want to work on my return. I have no choice but to spend
days to work out a summary of all of my transactions for my tax return.

Anyway here is a piece of advice I hope you will find helpful.

If you indeed have as many as hundreds of transactions to report and you gain/loss
is hardly sizable (like $1000,00 as you said) you would in all likelihood won't
have the drive to suffer through this one ordeal of tax return. Instead of producing
a detailed summary of your stock transactions try your best to estimate the total
gain/loss. This is probably doable if you got into this game recently. You probably
can check the total amount of money you have put into your account as well as total
cash withdrawal. Try your best not to overestimate the size of your loss or underestimate
your gain. If you have a clean record you hopefully can get away for this one time.
The worst thing that could happen to you is for revenue Canada to get back to
you to demand a resubmission of your return or even an auditing of your record.

An afterthought after I submitted my last post. For your tax return there is one section in the
form for you to enter transactions of individual transactions. In my earlier years I would have
the accountant at H&R Block type in these transactions to the computer for electronic submission
of my return. Because of the sheer number of stock transactions in recent years
I would present a summary of my transactions in a separate hard copy. You may consider having
a number of stock transactions filled in to the standard tax return form and skip the rest. This
way Revenue Canada may either assume there is no room for you to fill in all of the
transactions or figure out a complete inclusion of all your transactions is simply not
feasible on your part. Hopefully they would spare you.

Magaya said:

But why can't I get a statement form Bank telling me what was net profit or loss in the year as in case of say GICs or FDs?
I hate spread sheets...spread eagles are fine with me though ;-)

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Your stockbroker is going to give you a copy of what he reports to CRA, namely all trades. For the stocks you
do not hold after dec 31, the gain/loss will be easy to caLculate = total sales - total buys. For stocks you keep from year to year,
you may need to calculate the gain/loss from an adjusted cost base.

On your tax return, you generally need only report 2 numbers, Gain/loss and total of dispositions.

Magaya said:

One more quick question - I went thru that guide on capital gains and noticed that one can only apply capital loss to offset capital gain in same year or in future.
This means that even if my new allowable capital loss is $10000.00 this year and my payable tax amount due to other income sources is $3000, there is zero $ I can apply to reduce the income tax payable. Am I correct? (assuming I dont have any capital gains this year or in the past)

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I've only used capital loss from money-losing stock transactions for the purpose
of calculating my yearly net capital gain. I do believe net capital loss can only be
applied to offset capital gain not your earning income as you said but I am not
speaking from experience. I also believe you can apply capital loss to past capital
gain. If you paid tax on net capital gain in the past you can claim your loss
retroactively. But I could be wrong so check with your accountant.
I would say it is more advantageous to retain capital loss for
capital gain in the future years if a net loss ever happen to me.