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

Health Minister Tyler Shandro said Thursday that the province was ready to move forward with Phase 2A and B in the coming weeks. (Photo by Paul Taillon/Office of the Premier)
COVID restrictions for retail, sports and performers further eased

Occupancy in stores and malls boosted to 25 per cent from 15 per cent

Advocate file image
Red Deer COVID cases continue to decline

249 cases in Red Deer, down from 565 peak on Feb. 22

File photo
Gov’t of Alberta identifies estimated 300 new COVID-19 cases Sunday

Online COVID-19 dashboard unavailable as upgrades being completed

COVID
Red Deer down to 313 active cases of COVID-19

Alberta reports an additional 411 COVID-19 cases

(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

A SAGA member (left) poses as Jessi Hanks (right) with Castle Restaurant puts up a safe space sticker to display on the restaurant’s front door. Shaela Dansereau/ Pipestone Flyer.
SAGA Wetaskiwin works with local businesses to display they are a safe space

The safe space stickers show that its a safe and inclusive space.

David and Collet Stephan leave for a break during their appeal hearing in Calgary on Thursday, March 9, 2017. THE CANADIAN PRESS/Todd Korol
Alberta Appeal Court orders 3rd trial for parents in toddler’s meningitis death

Stephans were accused of not seeking medical attention sooner for Ezekiel, who had meningitis when he died

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a UHN COVID-19 vaccine clinic in Toronto on Thursday, January 7, 2021. THE CANADIAN PRESS/Nathan Denette
Vaccine hesitancy decreases in B.C. as mass immunizations set to begin: poll

Two-thirds of British Columbians, and Canadians, would get the vaccine as soon as possible

A woman walks through Toronto’s financial district on Monday, July 30, 2018. A new poll suggests most Canadians believe there’s still a long way to go to achieve gender equality in this country. THE CANADIAN PRESS/Graeme Roy
Canadians, especially women, say gender equality not achieved in Canada: Poll

Poll results themselves underscore the challenge, with more men believing equality had been achieved

This image provided by Harpo Productions shows Meghan, The Duchess of Sussex, left, in conversation with Oprah Winfrey. (Joe Pugliese/Harpo Productions via AP)
Race, title and anguish: Meghan and Harry explain royal rift

Meghan said she struggled with concerns within the royal family about her son’s skin colour

Kiara Robillard is seen in an undated handout photo. When the pandemic began, Robillard had to rush back home to Alberta from California, where she had been living for five years, after she was struck by a truck that broke her spine in two places. THE CANADIAN PRESS/HO-Kiara Robillard, *MANDATORY CREDIT*
‘It kind of clicks:’ Text4Hope program helps with depression, anxiety during pandemic

Participants receive one text message every morning for three months

Hockey hall-of-fame legend Wayne Gretzky, right, watches the casket of his father, Walter Gretzky, as it is carried from the church during a funeral service in Brantford, Ont., Saturday, March 6, 2021. HE CANADIAN PRESS/Nathan Denette
Walter Gretzky remembered as a man with a ‘heart of gold’ at funeral

The famous hockey father died Thursday at age 82 after battling Parkinson’s disease

Supporters rally outside court as Pastor James Coates of GraceLife Church is in court to appeal bail conditions, after he was arrested for holding day services in violation of COVID-19 rules, in Edmonton, Alta., on Thursday March 4, 2021. THE CANADIAN PRESS/Jason Franson
‘Law remains valid:’ Pastor accused of violating health orders to remain in jail

The Justice Centre for Constitutional Freedoms is representing the pastor

Most Read