I’m wondering if anyone knows how to report short sale of stocks. The T5008 shows the sale (proceeds) in box 21 but since the position is still open, there is no cost. My understanding is that it’s not a taxable event until the position is considered closed (the taxpayer purchases same or similar stock). So first of all, how do I know when it’s closed? Will another T5008 be issued in that year? And second, how do I report it on the S3?
Thanks in advance.
Unless the client is electing under subsection 39(4) by filing a T123 profit or losses from short selling are generally considered to be business income or loss and reported on a T2125.
Income? Haha! This guys is all losses! For years he has been day trading - over 5000 trades per year - and has lost hundreds of thousands per year! I can’t figure out how he hasn’t run out of money yet. I have been recording the losses as capital losses because he insists he’s going to stop day trading. I don’t want to attract CRA’s attention with $100k short sell loss against $90k employment income.
The other reason is I don’t know how to calculate the loss. How do I know when the positions are closed? I realize after my first post that another T5008 won’t be issued because the banks don’t issue slips for buys, only sells. So how do I calculate and report the transaction?
Well… if the short sales are on account of capital and there were open positions at the end of the year I would report the ACB to be equal to the Proceeds of Disposition for 2022 (that way all T5008’s are reported), then next year I would record the entry again (same proceeds), but use the amount he paid to purchase the stock or close out the position as the ACB.
Gives rise to an interesting question. If he had profits, CRA would - without any shred of a doubt - assess it as business income. With 5,000 trades, that’s 23/business day, clearly eating up a lot of time and having all the aspects of a business operation.
As a loss position: does he have a Reasonable Expectation of Profit? (The REOP test of course being huge in business loss tests.) How would that be viewed.
Maybe the losses aren’t on account of capital…
(As for the query posed, @snowplow has the process I’d use.)
Thanks @snoplowguy. This is a good point @SmallBizGuy. I believe he does have reasonable expectation of profit. He opened this account in 2020 and it looked like a hobby for him. He told me he set up a bunch of automatic stop loss and buy orders in his account and then got busy with work and neglected his trading account. The story lined up because the out of control trades and losses happened right after he got a big promotion at the end of 2020, but then it continued. For 2020 and 2021 I reported everything as capital. But now for 2022, it’s a pattern. With 3 years of large losses and a now negative account balance, will he finally stop or do I start using the T2125?
I couldn’t possibly enter all trades in S3 and taycyle won’t download that volume so I entered the TOTAL in S3. Would you believe the total proceeds and cost values are $20 Million each year?! If that doesn’t raise flags, I don’t know what will. For my own CYA, I prefer to keep it as capital.