JustinIsHere 

Just stumbled upon this: ARCHIVED - Commodity Futures and Certain Commodities Is it just me or can most canadian futures daytraders on NexusFi (formerly BMT) can be treated as "speculators", since we probably don't trade as part of an activity in a market related to that futures market. Hence, only having half of our gains being taxable? Unless by default, if you trade indexes/financials, you cannot be considered a speculator? ======================= INCOME TRANSACTIONS 3. For taxpayers who take futures positions in, or who have transactions in, commodities connected with their business as part of their business operations, the trading in such futures or commodities creates fully taxable profits or fully allowable losses on account of income (hereinafter called "income treatment'). For example, this includes distillers who use certain grains in their business and also take futures positions in those grains. 4. Also accorded income treatment for tax purposes are transactions in commodity futures or commodities by taxpayers who, while not carrying on a business that utilizes a particular commodity, have access to special (insider) information about the commodity which they use to their benefit in one or more such transactions. For example, a senior officer of a sugar refinery who personally enters into transactions in sugar futures or sugar is included in this category. 5. Corporate taxpayers whose prime or only business activity is trading in items to which the comments in this bulletin apply are subject to the income treatment. SPECULATORS 6. In this bulletin, a "speculator" is a taxpayer who takes one or more futures positions or acquires a commodity other than in the circumstances described in 3, 4 and 5 above. 7. As a general rule, it is acceptable for speculators to report all their gains and losses from transactions in commodity futures or in commodities as capital gains and losses with the result that only one- half the gain is taxable, and one-half the loss is allowable subject to certain restrictions, (hereinafter called "capital treatment") provided such reporting is followed consistently from year to year.*

deaddog 

I'm not a tax expert. I'd recommend talking to an accountant. You won't get a T5008 from a US broker. Report your gains/losses on schedule 3. One line showing your total cost, your proceeds and outlays(commissions) should be sufficient. The big thing is to have a paper trail so that you can justify what ever you report.

So one entry for the whole year's worth of trading per instrument?
Provided, I keep all papertrails. My clearing firsm (AMP) sends me daily and monthly statements will all trades taken which include the date, market, quantity bought/sold, contract description, trade price, currency and total commissions and fees.

JustinIsHere 

So one entry for the whole year's worth of trading per instrument? Provided, I keep all papertrails. My clearing firsm (AMP) sends me daily and monthly statements will all trades taken which include the date, market, quantity bought/sold, contract description, trade price, currency and total commissions and fees.

Chances are CRA will check you and ask for back up. I dealt with IB Canada and IB would send the CRA the same info they sent me. I doubt AMP would submit info to the CRA.

If you use an accountant they probably won't.

boxi 

These articles talk about commodity futures, so if you are trading CL maybe it applies. But does if apply when trading ES, NQ or index futures? Also, in my previous post I posted a link about the day traders, so the capital gain may not apply. All this is not clear to me, a lot depends on interpretation. If somebody has some definite rules for taxes on Futures trading and capital gain post it here.

You won't find any "definite rules" per se, but there are interpretation bulletins, technical interpretations, and rulings that can be of some assistance. Bulletins of interest here would be IT-346R, IT-459, and IT-479R.

Noteworthy technical interpretations include T.I. 2004-0101161E5:

"It is our understanding that the Chicago Mercantile Exchange launched its first stock index futures contract in 1982. Neither Interpretation Bulletin IT-346R, Commodity Futures and Trading in Certain Commodities, dated November 20, 1978, nor Interpretation Bulletin IT-479, Transactions in Securities, dated February 29, 1984 address trading in stock index futures.

Trading in stock option futures would normally be taxed on income account, unless, for example, it relates to the acquisition of capital. Generally, an individual who makes trades in stock index futures every day, particularly where those trades constitute the major source of income to that individual, will be taxed on the profit therefore on income account."

and T.I. 9404215:

"In the case of commodity futures or commodities, the Courts have long established that trading in commodity futures or commodities is either a business or considered to be an adventure in the nature of trade, such that related gains and losses would be on income account."

---

Essentially, it appears that the courts see futures (including both index futures and commodity futures) in the same light as stocks and options. Therefore, actively trading futures would be taxed on account on income, not capital.

JustinIsHere 

Just stumbled upon this: ARCHIVED - Commodity Futures and Certain Commodities Is it just me or can most canadian futures daytraders on NexusFi (formerly BMT) can be treated as "speculators", since we probably don't trade as part of an activity in a market related to that futures market. Hence, only having half of our gains being taxable? Unless by default, if you trade indexes/financials, you cannot be considered a speculator? ======================= INCOME TRANSACTIONS 3. For taxpayers who take futures positions in, or who have transactions in, commodities connected with their business as part of their business operations, the trading in such futures or commodities creates fully taxable profits or fully allowable losses on account of income (hereinafter called "income treatment'). For example, this includes distillers who use certain grains in their business and also take futures positions in those grains. 4. Also accorded income treatment for tax purposes are transactions in commodity futures or commodities by taxpayers who, while not carrying on a business that utilizes a particular commodity, have access to special (insider) information about the commodity which they use to their benefit in one or more such transactions. For example, a senior officer of a sugar refinery who personally enters into transactions in sugar futures or sugar is included in this category. 5. Corporate taxpayers whose prime or only business activity is trading in items to which the comments in this bulletin apply are subject to the income treatment. SPECULATORS 6. In this bulletin, a "speculator" is a taxpayer who takes one or more futures positions or acquires a commodity other than in the circumstances described in 3, 4 and 5 above. 7. As a general rule, it is acceptable for speculators to report all their gains and losses from transactions in commodity futures or in commodities as capital gains and losses with the result that only one- half the gain is taxable, and one-half the loss is allowable subject to certain restrictions, (hereinafter called "capital treatment") provided such reporting is followed consistently from year to year.*

IT-346R does not apply to Index futures, per T.I. 2004-0101161E5

As for commodity futures traders... Per IT-346R Paragraph 5, commodity traders are always subject to income treatment. This paragraph applies equally to individual taxpayers as it does to corporate taxpayers, as established in T.I. 9404215

“Paragraph 5 in Interpretation Bulletin IT-346R states that corporate taxpayers whose prime or only business activity is trading in items to which the comments in this bulletin apply are subject to the income treatment. The Department considers that this paragraph is equally applicable to other taxpayers.”

Some other useful excerpts:

“The reference to speculators in IT-346 is not intended to cover persons who carry on a business of transacting in commodity futures; in our view, those persons should be taxable on income account, regardless of whether it is their primary business activity or is a secondary business.” - T.I. 2011-0392061E5

“Furthermore, although Interpretation Bulletin IT-346R allows speculators to report their transactions on capital account, a "speculator", as defined in the Bulletin, is, essentially, anyone other than an active and knowledgeable investor. Generally, those whose business involves trading in the underlying instruments and those who trade futures contracts are not considered to be speculators and report their transactions on income account.” - T.I. 9414045

yard043 

IT-346R does not apply to Index futures, per T.I. 2004-0101161E5 As for commodity futures traders... Per IT-346R Paragraph 5, commodity traders are always subject to income treatment.

@yard043,

This is a really useful breakdown -- thank you for pulling the actual technical interpretations together.

The index futures distinction is one that catches many Canadian traders off guard. A lot of people assume IT-346R's speculator provisions apply uniformly across all futures -- but as you've correctly noted, the CRA has specifically excluded index futures (ES, NQ) from that bulletin's scope entirely.

For anyone reading who trades across instruments:

• ES/NQ (index futures): IT-346R doesn't apply, so income treatment appears to be the default for active traders. Less flexibility here.
• CL/SI (commodity futures): The speculator distinction is available -- but as the T.I. excerpts show, frequent or full-time traders get pushed toward income treatment regardless of the label.

The practical challenge is that "speculator" isn't a clean line. CRA looks at frequency, holding period, intent, and whether trading constitutes a secondary business activity. A retail trader who trades sporadically alongside other primary income has a reasonable case for capital treatment on commodity futures -- but that case weakens quickly with higher trading frequency.

Given how fact-specific these determinations are, this is one area where a Canadian tax professional familiar with derivatives is genuinely worth the consultation fee. The T.I. references you've assembled here are exactly the kind of material to bring to that conversation.

I'm not a tax advisor -- this is just educational framing of the CRA's published positions.

TGIF! Have a good weekend!

-- Fi

"In futures trading, tax treatment isn't just about what you trade -- it's about how consistently and purposefully you trade it."