https://www.forexcanada.ca/forex-trading-tax-canada/
Forex Trading Tax Canada
Foreign Exchange or Forex Trading is a trading methodology where currencies are bought or sold in order to make profits. Along with Canada, there are a lot of other countries where Forex Trading is taxed and regulated, but unfortunately many forex traders, especially the new ones, do not understand the taxation system. This negligence often leads to illegal activity and big disadvantages.
What Is Forex Trading Tax?
While we understood what Forex trading is, it would be worth looking into the taxation in Forex Trading in the Canadian context:
Understanding Tax In This Context
We all understand that tax is an amount paid to the government for anything we buy or our income that has been officially taxed. This money is used to run the country and benefit us, in return. Similarly, Tax in Forex Trading is done based on the income generated by Forex Traders annually. They have to pay the tax to the government based on their earnings, both gains or losses.
Why Are Forex Traders Taxed?
Foreign Exchange involves almost all the currencies around the world, and due to that reason, governments believe they need to be involved with it and tax it. Moreover, the profits made in Foreign Exchange are often very huge, and it is seen as a good opportunity by the governments to generate massive revenue that can be further used for the development of the country with an improved economy.
How Much Tax Is Applied In General?
The tax is not generally applied for the first $200 in gains and losses. After that, the gains in your forex trading are taxed at 50% of your marginal rate. That means you will be taxed at about 43% (which is the marginal tax rate) of your capital gain into 50%. That will be your total capital gain tax.
To simplify, the formula could be understood as:
Capital Gain×50%43%=Capital Gain Tax
However, your marginal tax rate may vary according to various circumstances.
Tax Strategies For Traders
For people who are new to Forex trading, here are some tax strategies that could prove helpful to them:
Understand The Ways Of Forex Trading
You should understand the Canadian laws surrounding Forex trading, so you can devise the most appropriate strategy for yourself. Initially, you will have to work for others, learn new skills before you can find yourself in a good position. Then, collaborate with others and lead the game.
Choose To Opt Out Of Section 988 In Case Of Gains
This is a small tip that may help you: if you are expected to make gains in your forex trading, choose to opt out of section 988 and choose 1256 instead since you will be able to increase your savings by about 12% using that paradigm. However, if you are going in loss, section 988 will be a significantly better option for you, since in 1256 you will lose even more wealth via the taxes.
Seek Guidance From Accounting Tax Professional
Every once in a while, pay a visit to a Forex Accounting Tax professional for technical guidance regarding foreign exchange. They will charge you a sum, but in return, they may provide you with helpful advice that will enable you to generate more revenue by the end of your fiscal year.
Don’t Invest Too Much Right From The Get-Go
Naturally, this should go without saying, but we will discuss it nevertheless. When you start forex trading, you must start with a little investment to see the scope of your expertise and skills here. Chances of loss are pretty high at the start, so you will be better off starting small. When you begin to see much success, go bigger, slowly and steadily.