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There has yet to be a TFSA “characterization of income” case in court providing clarity on this issue, but if the recent decision of Prochuk v The Queen is any indication, TFSA profits could eventually be barred from even being considered as business income. The taxpayer in that case unsuccessfully argued that he was carrying on a business in his RRSP trades, and the court flatly stated that “the [Income Tax Act] treats an individual who trades within his RRSP differently than a taxpayer who is in the business of trading. For this reason, trades within an RRSP are not relevant in deciding whether an individual is in the business of trading.”

The same reasoning the court gave in Prochuk as to why trades within an RRSP would not be relevant to a determination of an individual’s trading practices will become very relevant in any future court case concerning TFSAs and an individual’s trading practices. In other words, as with RRSPs, the Income Tax Act treats individuals who trade within their TFSA differently than taxpayers who are in the business of trading – for that reason, trades within a TFSA should not be relevant in deciding whether an individual is in the business of trading.

Disclaimer:

"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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