I’m not sure that recent legislation contained any special measures to treat the Day-Trading of stocks within a TFSA as business income (thus fully taxable). The CRA has always maintained this position (since their creation in 2009) but have really only been aggressively auditing high value TFSA’s since about 2016. The amount of “Day-Traders” who lose money outnumber the winners, likely by a multiple of 10 or more, yet the CRA don’t seem to bother chasing those with TFSA business losses. It seems the CRA is relying on IT-479R to assist in determining whether gains are being made on account of capital or income, and essentially applying this the same way as they would to transactions made outside the TFSA.
I think what the recent legislation actually proposes is that the “account holder” of the TFSA be liable for the income tax if it is determined the TFSA has in fact been earning business income. Prior to this proposal, it was the TFSA itself and the Financial Institution that were liable for any income tax owing on the TFSA profits.
Basically speaking, under existing legislation, it seems that if the TFSA funds had been withdrawn, the CRA could go after the financial institution for the tax on the income earned. Under proposed legislation, the financial institution and the TFSA account are still responsible, to a maximum amount of whatever is left remaining in the TFSA. The TFSA account holder would then be liable for any shortfall.
It would seem natural the account holder of the TFSA would be responsible for the income tax arising from TFSA business income, but apparently not. New legislation was needed to shift the responsibility to the account holder.
This change will apply to 2019 and future years.
I’m pretty sure the new legislation does little or nothing to define or expand on what does and doesn’t constitute business income earned within a TFSA.
In your case @walt if the Taxpayer has “capital losses” in the TFSA, and transfers out to a non-registered account, he simply has nothing. There are no “capital losses” to claim because the value was lost within the TFSA. It would only be if you decided to treat the losses as losses from a business that you would have any hope of being able to deduct the loss. It would depend on the sophistication of the investor, as well as other relevant facts. I would think it would be an uphill battle if the investor doesn’t have a very good grasp of the market, or works in that industry.