RE:RE:RE:Sell high, buy back lower. Inconsistent Treatment? Trading in An RRSP
Others simply find it puzzling that the Canada Revenue Agency seemingly adopts a contradictory position without explanation when it comes to registered retirement savings plans. Like a TFSA, a registered retirement savings plan is tax-assisted savings vehicle. Moreover, an RRSP permits the same investment holdings as those allowed in a TFSA. Yet, in Prochuck v the Queen (2014 TCC 17), the CRA and the Crown found themselves arguing that frequent trading within an RRSP does not amount to carrying on a business since an RRSP is “a unique tax-protected vehicle.”
In Prochuck, the taxpayer suffered a substantial loss on an investment outside his RRSP. He wished to characterize the loss as a fully deductible business loss. The CRA argued that the loss was only a one-half deductible capital loss. In response, the taxpayer pointed to the 512 trades that he made within his registered retirement savings plan during the taxation year at issue. The CRA and the Crown took the position that trading inside an RRSP cannot be considered a business. The Tax Court of Canada agreed. The court reasoned that the Income Tax Act “treats an individual who trades within his RRSP differently than a taxpayer who is in the business of trading.” In particular, while a taxpayer earning business income from trading must report all income on a yearly basis, a taxpayer trading within a registered retirement savings plan can move funds around inside of the RRSP without tax consequence and accumulate tax-free income on funds held in an RRSP. On this basis, the court concluded that “trading within an RRSP does not amount to carrying on the business of trading.” Interestingly, a tax-free savings account seemingly exhibits the same features that the Prochuck court found relevant when deciding that trading within an RRSP does not constitute a business.