Tax treatment tells Adjustibl how the transactions in an account should be calculated.
This matters because the same purchase or sale can produce a different result depending on whether the activity is treated as capital investing, business activity, or activity inside a registered account.
Adjustibl supports four treatments:
- Capital gains
- Business income
- Registered tracking
- Review later
Capital gains
Use capital gains treatment when the investments in an unregistered account are held as capital property.
Adjustibl keeps a running ACB for each asset. When you sell something, it compares the sale proceeds with the portion of ACB being sold and calculates a capital gain or loss.
This treatment can also account for rules that affect ACB, such as commissions, return of capital, reinvested distributions, and superficial losses.
Capital gains treatment does not mean every trade automatically qualifies as a capital transaction. Whether investment activity is on account of capital or income depends on the facts.
Business income
Use business income treatment when your trading activity is being reported as a business.
Instead of calculating capital gains and losses, Adjustibl calculates business profit and loss. The full profit or loss becomes part of the business result rather than being processed using the capital gains inclusion rate.
Capital gains or business income?
The difference between capital investing and carrying on a trading business can be subjective. There is no single rule based on the number of trades, the amount of profit, or how long an investment was held.
Instead, the answer depends on the overall facts. Some of the factors the CRA considers include:
- How frequently you buy and sell
- How long you usually hold investments
- How much time you spend researching and trading
- Your knowledge and experience with financial markets
- Whether trading is part of your ordinary work or business
- Whether purchases are financed using margin or other debt
- The types of securities being traded
- Your intention when buying an investment
No single factor decides the answer. Frequent trading can point toward business activity, but the number of trades alone does not settle it. The CRA considers all of the facts together. In some cases, even an isolated transaction can be treated as business income when the conduct and intention support that conclusion.
This makes the treatment a matter of judgment, but it does not mean you can simply choose whichever treatment produces the better result. The treatment should be supported by your records and applied consistently to similar activity. It is possible to have some transactions on capital account and others on income account, but the difference needs to reflect the facts rather than the preferred result.
The CRA's current guidance confirms that securities transactions may be reported on account of capital or income. Its page on calculating and reporting capital gains also discusses the difference between income and capital treatment.
For more detail, the CRA still refers readers to its archived interpretation bulletin on transactions in securities. The bulletin is old and no longer updated, but it provides the CRA's detailed list of factors.
If you are unsure which treatment applies, this is a good question to discuss with an accountant.
Registered tracking
Registered tracking is used for accounts such as:
- TFSA
- RRSP
- FHSA
- RESP
- LIRA
- RRIF
Adjustibl still records purchases, sales, income, transfers, and changes to your positions. However, it does not treat each sale as a capital gain or business profit in the same way it would inside an unregistered account.
The different registered plans do not all have the same rules. For example, TFSA investment income and capital gains are generally tax-free, while RRSP income is usually sheltered while it remains in the plan and withdrawals are generally taxable. The CRA explains how TFSAs and RRSPs work and provides separate guidance for FHSAs and RESPs.
Registered tracking helps you understand the activity and positions inside the account. It does not calculate contribution room or decide whether a withdrawal qualifies for a particular treatment.
Review later
Use Review later when you are not ready to choose a treatment.
Adjustibl keeps the account and its transactions available, but does not include them in the Capital, Business, or Registered calculations.
This is safer than quietly making an assumption that could change the result. Once you know the correct account type and treatment, you can update the account and run the calculations again.
One treatment per account
Each account in Adjustibl can have only one tax treatment.
If one brokerage account contains both capital investing and business trading, create two accounts in Adjustibl and separate the transactions:
- Brokerage Capital
- Brokerage Business
This allows Adjustibl to apply the correct calculations to each group of transactions.
Choosing the right treatment
Registered accounts are assigned Registered tracking based on their account type.
For an unregistered account, choose Capital gains or Business income based on how the activity is actually being reported. Do not choose based on which result produces less taxable income.
If you do not know yet, choose Review later. You can organize the transactions now and confirm the treatment before relying on the reports.