Shorts and taxes.

[garilou]

In his post from 11 May 2007,poopeepants wrote:  http://www.superstockpicker.com/forum/index.php?topic=198.msg394#msg394

<===Snip===> Also, shorting is not a capital gain or loss according to the tax man.

Could anyone confirm or infirm this statement?
I have always declared my shorts gains and losses.
This year for the first time, an accountant made my income tax statements, and she did not mention anything like that, and entered my shorts in the same page as all other closed trades.

[Victor]

It's been a while since I looked this up, but you should be able to find it in the government's web pages.  I believe the P/L on short sales goes into the income account on your taxes, not capital gains.

Don't go by me though... I'm not an accountant.

Cheers,

Victor

[Victor]

Here's a link to the CCRA's Iterpretation Bulletin:
http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.txt

Note however that there are a number of references on the web regarding this which say that if the short sale is a hedge against a position in a capital account, then the short sale is in the capital account.

I'd get an opinion from an accountant.

Cheers,

Victor

[garilou]

Thanks a lot for this reference.

There one can read very clearly:

18. The gain or loss on the "short sale" of shares is considered to be on income account.


It is hard to understand the logic of that! As soon as a short is covered, the money is automatically transferred in my normal trading account.


On the other hand (this text has so many considerations) I can understand that if trading is your main source of income, if you trade for your living, it could and should be considered as income.


When I brought all my data to the accountant, at least one stock was clearly identified as a short gain. When I saw her, (and her husband is a pretty good "fiscalist" - is this an English word? how do you call a tax specialist?) after she was finished, I asked her if the way I had presented my data was OK, (I tried to prepare everything in advance so that it'll take her as little time as possible, she's paid by the hour.)

She said, for the traded stocks, to prepare it in the way of the annexe 3 that she had filled: I looked at it, and there is really no way you could see it this was a short or not.
Contrary to the form I used to fill on the program that I used before, no date appears as the date of acquisition: one column for disposition, one column for the buy, and the difference is the gain or the loss.

Still I will print this and bring it to her next year.

[DCA]

Yes, 18 is quite clear.  I would like to point out the affect of 10a.  If you read it carefully you will realize that any transaction based on SSP could be considered income.  This is due to the underlying reasoning that to be capitial gains then the investment was made to earn income not gains.  You are now disposing of it for cash and any gain or loss is unintentional.  If you buy or sell stock with the 'intention' of making a gain at the initial purchase it is income.  The very definition of SSP picks is stocks that are expected to make a gain in the short term.

That said, Revenue Canada takes a view of not trying to aggressivly prove intentions and will generally allow an individual taxpayer to report as gains unless they have been declared an insider or make the bulk of their income from investments.  Also since they do not want to be discriminating against those of low salary they will leave you alone until you are making 6 figures in investments.  (Then they will send someone over with the fingernail plyiers.)