Canadian CANNAINVESTOR Magazine July / August 2017 - Page 199

As you can see time invested and rate of return are most important when looking at investing.

Recently there has been rumblings of the taxman (CRA) considering the trading activities of large balanced TFSA. It makes sense when you think about it. They know that at some point all that money will be withdrawn tax free and they want to get their hands on it. The belief is that if you are actively trading (like a business) which is sometimes called “adventure in the nature of trade” then those earnings should be taxed as business income not capital gains.

Now why don’t they go after RRSP’s? You could make a similar argument that someone who is actively trading in their RRSP so much so that they are in the business of trading. Well the reason is that money withdrawn from an RRSP is fully taxable at your marginal tax rate. In fact, they would probably prefer that you did build up a large RRSP balance through trading so they can tax it at withdrawal. What this doesn’t account for though is the fact that RRSP contributions come with a tax deduction at your marginal tax rate. TFSA’s don’t have this so mathematically it doesn’t make sense! There is essentially no difference between the two if the contributing tax rate and withdrawing tax rate are the same.

The CRA’s thinking is short sighted. There are a lot of Canadians who have bought stock and lost money, they would love to be able to write those losses off a business loss instead of a capital loss. If that happens the CRA will have its work cut out for them. In the end don’t punish Canadians for investing in the economy and saving for themselves. The numbers don’t make sense and neither does the sentiment.