I need advice how to handle accounting for day trading through his private corporation for tax purposes.
Briefly, my client contributed his own funds in CAD and converted it into USD in his online brokerage account upon transfer into it. During the fiscal year (non-calendar year) of the corporation, he traded mostly in stocks and earned profit by year-end. Given the circumstances, we are treating it as a business income instead of capital gain for tax reporting purposes.
Client gave me “activity statement” from his brokerage account for the fiscal year. It shows Net asset Value (NAV) with opening and closing balances of his USD cash account, stocks etc. for the year. It also shows the change in the value of stocks with long and short positions held during the year. In this report, It also shows “Mark to Market” and “Realized & Unrealized Performance Summaries” for the stocks. (Please see below images for reference purposes).
I am seeking your help how to report his day trading income on his corporate tax return and Sch 125 - Do I only take “realized profit / gain” from “Realized & Unrealized Performance Summaries” or Profit as shown from his Mark to Market summary. As stocks are in USD, Do i take average exchange rate to convert to CAD for reporting the income? What about increase in value of stocks, he still holding at the end the year, how to report it?
Similarly, reporting of assets on balance sheet at closing date such as cash & stocks, which are both in USD. What exchange rate should i take for it as these are in USD? Lastly, on liability side, will it be only “due to shareholder” loan, as only liability as he used only his personal funds for day trading or there will be some kind of other liability due to day trading or holding of stocks such as “unrealized proceeds from sale of stocks” etc.
Since the director could potentially go to jail (12 months) in addition to the fine of $25,000 pursuant to S238 for his present failure to comply with S230 on behalf of the corporation, I would very strongly suggest that the bookkeeper advise the director to run, not walk, to a meeting with the corporation’s CPA, and start taking legal matters seriously.
This is not a matter for self-help by the director.
Once compliance with S230 is properly done, then other matters will become more clear.
@yours.harry
There are some options re: how to record such transactions in the client’s books and records, but your questions indicate that the necessary decisions have not been made - that is, the corporation’s management (possibly the same person as the director and/or shareholder), needs to make these decisions - preferably BEFORE embarking on the whole day-trading project.
If you have been hired to provide advice, in order that management can make an informed decision, it would be wise to do some research, or take some related classes, so that you can be sure that YOU are giving the correct advice. This forum may be helpful, but don’t expect the advice you get here to hold up in court, if/when your client sues YOU for giving bad advice.
If you are simply doing the bookkeeping for your client, you should record the transactions as directed by your client, but your client should first seek advice from a qualified tax professional (which may or may not be a CPA - not all CPAs are tax experts…)
