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

Some of the folks behind Angel Flight East Kootenay: Todd Weselake is a director, partner and pilot while Brent Bidston is the president and lead pilot of the not-for-profit. Pictured here with their older plane, they hope to get an upgrade for thanks to RDEK funding. (Image courtesy of Angel Flight East Kootenay)
Angel Flight secures RDEK funding for next five years

$100,000 will go to the not-for-profit each year, with the funds to be used to acquire a larger plane

This Dec. 2, 2020, file photo provided by Johnson & Johnson shows vials of the COVID-19 vaccine in the United States. (Johnson & Johnson via AP)
Interior Health notes 80 new COVID-19 cases over the weekend

108 people in the region have died from the virus

Last week warming temperatures were a concern for Avalanche Canada forecasters, and those trends likely contributed to an avalanche that killed a West Kootenay snowmobiler on Thursday, March 4. Jen Coulter file photo.
Warming trend contributed to Kaslo fatality: Avalanche Canada

Concern for persistent layers has reduced since then

(L-R) Michelle Malan, Administrator for the Elk Valley Seniors Housing Society (Lilac Terrace) and Stephonie Gordon, Staff Representative of the Legacy Celebration Committee, Sparwood Branch. (Contributed by EKC)
EKC gives $10k to Lilac Terrace

The funding is part of the EKC’s 70s anniversary celebrations

Forty-eight vaccination clinics will open across Interior Health beginning March 15. (Canadian Press)
48 COVID-19 vaccine clinics to open across Interior Health

Select groups can book appointments starting Monday

(The Canadian Press)
‘Worse than Sept. 11, SARS and financial crisis combined’: Tourism industry in crisis

Travel services saw the biggest drop in active businesses with 31 per cent fewer firms operating

Cottonwoods Care Home in Kelowna. (Google Maps)
New COVID-19 outbreak at Kelowna care home includes fully vaccinated seniors: Henry

Two staff and 10 residents tested positive at Cottonwoods Care Centre

Excerpts from a conversation between Bria Fisher and the fake truLOCAL job. Fisher had signed a job agreement and was prepared to start work for what she thought was truLOCAL before she learned it was a scam. (Contributed)
B.C. woman warning others after losing $3,000 in job scam

Bria Fisher was hired by what she thought was a Canadian company, only to be out thousands

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

Provincial health officer Dr. Bonnie Henry and Health Minister Adrian Dix provide a regular update on the COVID-19 situation, B.C. legislature, March 2, 2020. (B.C. government)
B.C.’s COVID-19 cases: 545 Saturday, 532 Sunday, 385 Monday

Focus on Prince Rupert, Lower Mainland large workplaces

Rising accident rates and payout costs have contributed to billion-dollar deficits at ICBC. (Comox Valley Record)
B.C. appealing decision keeping ICBC injury cases in court

David Eby vows to ‘clip wings’ of personal injury lawyers

(Black Press Media files)
Hosts charged, attendees facing COVID fines after Vancouver police bust party at condo

Police had previously received 10 complains about that condo

Minister of Families, Children and Social Development Ahmed Hussen takes part in an update on the COVID pandemic during a press conference in Ottawa on Tuesday, Oct. 27, 2020. A joint federal and B.C. government housing program announced today aims to help people living in up to 25,000 vulnerable households pay their rent. THE CANADIAN PRESS/Sean Kilpatrick
Federal, B.C. governments announce $517-million rent aid program to help vulnerable

Benefits for those not eligible for B.C.’s Rental Assistance Program or Shelter Aid for Elderly Renters

Most Read