Haman Mamdouhi, of Toronto, is shown in this handout photo. Mamdouhi says new investors should keep tax implications in mind before reaping profits. THE CANADIAN PRESS/HO

Haman Mamdouhi, of Toronto, is shown in this handout photo. Mamdouhi says new investors should keep tax implications in mind before reaping profits. THE CANADIAN PRESS/HO

Made a bundle from GameStop? Time to think about how it will affect your taxes

The onus is on traders and investors to keep track of their investments

When Haman Mamdouhi made $2,500 in profit from a $5,000 investment in Bitcoin last month, the tax implications weren’t exactly top of mind.

“Taxing is probably the last thing on anyone’s mind,” said Mamdouhi, who is in his early 20s and started investing casually in high school.

“The first thing is “oh, is Bitcoin something I should just get into, what’s going on?”

However, the Toronto-based entrepreneur says first-time investors should carefully consider the kind of money they’ll have to pay in taxes, and how they can deduct expenses to maximize the money they keep.

With a recent surge in the value of Bitcoin, and massive profits for some traders from the rapid rise (and subsequent fall) of GameStop shares, tax specialists say there are multiple ways that new traders can declare their income and expense the related costs.

In Mamdouhi’s case, he said he can expense interest payments associated with a line of credit that he opened to further invest in Bitcoin. He said Quebec also allows people who mine Bitcoin to expense the computer equipment needed to do so, which can cost around $20,000.

Lisa Gittens, a tax expert with H&R Block, said the first step in filing taxes for new traders is to figure out whether they’re investing over the long term, or if they’re buying and selling their shares in a matter of days.

Long term investments that span the course of months or years are generally treated as capital gains, meaning that only 50 per cent of a person’s profits will be taxed.

But if a person is buying and selling stocks in a short time-frame, like in the case of those who benefited from GameStop’s dramatic rise to over USD$460 per share in a matter of weeks, the profits would generally be considered business income, and 100 per cent of the profits would go towards your personal income tax bracket.

That means that in Ontario, an investor could expect to pay back at least 20 per cent of their profits in taxes if they were in the lowest tax bracket.

But Gittens said there could be exceptions if this was your first time dabbling in day trading.

“If it’s a one off thing that you just did this investment to try it, and you get a T-slip in the mail, you’d be reporting it … as investment income,” said Gittens.

“But if you look at this and you like it, and continue to (trade stocks), you’ll be reporting it as business income.”

For people looking to dive into day trading as a source of income, Gittens says the tax code gives Canadians opportunities to shelter their income in a registered retirement savings plan (RRSP) or a tax-free savings account (TSFA).

Canadians trading through an RRSP will have their profits treated as a capital gain and will only have 50 per cent taxed, Gittens said. The same can be true if you trade through a TFSA, but she said the Canada Revenue Agency can deny the shelter to your profits depending on how actively you trade through the account.

Day-traders also have multiple options when it comes to filing for expenses related to their work.

Gittens said people can deduct the cost of trading fees, management fees paid to stock brokers, or fees related to courses and registration with provincial securities commissions.

“It’s wonderful to know how to report income, but take advantage of our tax system that allows deductions and credits before you determine your liability,” said Gittens. “Claim the deductions and credits that you’re entitled to, so you can reduce the tax that you have owing on any type of investment.”

Gittens pointed out the onus is on traders and investors to keep track of their investments and the profits and losses from every transaction they make. She suggested keeping a spreadsheet or using an app to track their trades.

In the complicated and sometimes informal world of Bitcoin and other cryptocurrencies, that’s already proving to be a headache for Mamdouhi.

“Given that each transaction is a taxable event, and that you might be doing multiple transactions between (cryptocurrencies) throughout the day, it becomes almost unfeasible to even be able to do your taxes properly,” said Mamdouhi.

“Already, I’m at least three days behind.”

Salmaan Farooqui, The Canadian Press

Investing

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Chief Justice Christopher Hinkson (Office of the Chief Justice)
Judge questions whether B.C.’s top doctor appreciated right to religious freedom

Lawyer for province says Dr. Henry has outlined the reasons for her orders publicly

Okanagan high school girls volleyball players Georgia MacLean of Lake Country’s George Elliot Secondary (from left), Olivia Pederson of Vernon Christian School, Kassidy Schaper-Kotter of Vernon Secondary and Makenna Lane from W.L. Seaton Secondary have signed to play college volleyball with Abbotsford’s Columbia Bible College. (File photos)
Fraser Valley college inks quartet of Okanagan recruits

Columbia Bible College Bearcats in Abbotsford sign four players to women’s volleyball squad

Items seized by Chilliwack RCMP and Abbotsford Police during a Feb. 23 traffic stop. (RCMP photo)
Police from Chilliwack and Abbotsford seize drugs in traffic stop

Chilliwack RCMP worked with the Abbotsford PD to seize four kilograms of suspected fentanyl

(Black Press file photo)
Chilliwack RCMP looking for man who tried to grab boy near Robertson elementary school

A man in a parked minivan reached out the driver side window as a young boy passed by

Hope’s station house, moved from its original location along the railroad to 111 Old Hope Princeton Way. (Emelie Peacock/Hope Standard)
Health Minister Adrian Dix looks on as Dr. Bonnie Henry pauses for a moment as she gives her daily media briefing regarding COVID-19 for British Columbia in Victoria, B.C. THE CANADIAN PRESS/Jonathan Hayward
7 additional deaths and 542 new COVID-19 cases in B.C.

Provincial health officials reported 18 new COVID-19 cases linked to variants of concern

The City of Vancouver estimates there are 3,500 Canada geese in the city right now, and that number is growing. (Bruce Hogarth)
Help tame Vancouver’s Canada goose population by reporting nests: park officials

The city is asking residents to be on the lookout so staff can remove nests or addle eggs

A sample of guns seized at the Pacific Highway border crossing from the U.S. into B.C. in 2014. Guns smuggled from the U.S. are used in criminal activity, often associated with drug gangs. (Canada Border Service Agency)
B.C. moves to seize vehicles transporting illegal firearms

Bill bans sale of imitation or BB guns to young people

BC Housing minister David Eby is concerned that Penticton council’s decision to close a local homeless shelter will result in a “tent city” similar to this one in Everett, Wa. (Olivia Vanni / Black Press file)
‘Disappointed and baffled’ B.C. housing minister warns of tent city in Penticton

Penticton council’s decision to close a local homeless shelter could create tent city, says David Eby

Photo: Surrey RCMP
Surrey RCMP arrests two boys, age 16, during dial-a-dope investigation in Whalley

Sergeant Elenore Sturko said one boy is ‘alleged to have been in possession of a loaded handgun at the time of his arrest’

A recently published study out of UBC has found a link between life satisfaction levels and overall health. (Pixabay)
Satisfied with life? It’s likely you’re healthier for it: UBC study

UBC psychologists have found those more satisfied with their life have a 26% reduced risk of dying

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

A vial of some of the first 500,000 of the two million AstraZeneca COVID-19 vaccine doses that Canada has secured through a deal with the Serum Institute of India in partnership with Verity Pharma at a facility in Milton, Ont., on Wednesday, March 3, 2021. THE CANADIAN PRESS/Carlos Osorio - POOL
Federal panel recommends 4-month gap between COVID vaccine doses due to limited supply

The recommendation applies to all COVID-19 vaccines currently approved in Canada

Emergency crews are on scene at Walnut Grove Secondary School after a report of a bomb threat at Walnut Grove Secondary School on March 3, 2021. The school was safely evacuated. (Shane MacKichan/Special to Langley Advance Times)
UPDATE: Bomb threat forces evacuation of Langley high school

Police asked the public to avoid 88th Avenue and Walnut Grove Drive

Most Read