Can you deduct capital loss on a stock investment on your work income?
I have lost about 30K daytrading. I don’t even know what line in the tax form I would put the claim since there are hundreds of stocks I bought and sold on the Canadian stock exchange.
February 10th, 2010 at 12:01 pm
Short Answer – No. Capital losses can only be applied against capital gains.
Long Answer – Maybe. If you choose to treat your trading activities as business activities as opposed to capital, then the losses can be applied against all other forms of income, including employment. The appropriateness of treating your trading activities as business rather than capital would depend on a number of factors such as your original intention when buying the shares, the volume of transactions and time spent trading, among others.
The downside of going with business vs capital is that if you incur a profit, then this will be taxed at the full rate, whereas capital gains are taxed at 50% of the normal rate.
Also, once you have decided how to treat your securities trading activities, then you must be consistent in future years.
If you decide to go with business income, then you will need to complete form T2124E – Statement of Business Activities. If you go with capital gains treatment, then you would complete Schedule 3 – Capital Gains or Losses.
Either way, you only recognize gains and losses when the stock is sold. So you can’t recognize a loss from a decline in market value if you still own the stock at year end.
The issue of business income versus capital gains is discussed in the Canada Revenue Agency Interpretation Bulletin 459R (linked below).