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The world of do-it-yourself retail investing has exploded as new technologies and channels have allowed more and more Canadians to discover the appeal of playing the market on their own. But how does it all fit into the tax filing picture?

“If you earn interest, capital gains or dividends income, you have to report these amounts as investment income to the Canada Revenue Agency (CRA),” says Stefanie Ricchio, CPA, tax expert and spokesperson for TurboTax Canada. “However, if your investment is your primary source of income, it will be treated as business income by the CRA and 100 per cent taxable versus 50 per cent like capital gains.”

To determine your category, the CRA looks at factors including amount of time spent trading, experience and income from trading, says Ms. Ricchio.

What are capital gains?

“Capital gains are quite simply that: ‘capital’ is an asset, and includes stocks, real estate or even art,” says Ms. Ricchio, “‘gains’ are what you earn when you sell the capital at a profit.”

You can calculate capital gains (or losses) by taking the proceeds from selling the asset and subtracting your cost to purchase them and the fees to sell. If you earned money from this transaction, it’s considered capital gains, and you will be taxed 50 per cent of the value. For example, if you receive $10,000 from the sale of stocks (proceeds of disposition) and the stocks cost you $5,000, plus you incurred selling fees of $120, your total capital would be $10,000 - ($5,000 + $120) = $4,880. Your taxable capital gain would be calculated as $4,880 x 50 per cent = $2,440.

How investors can save on taxable income

“As an investor, it’s important to make sure you’re filing your return properly to get the best outcome possible for your tax situation,” explains Ms. Ricchio. She has three suggestions on how to minimize taxes in years when a retail investor is earning more investment income.

Open a RRSP or TFSA

Her number one tip: open a Registered Retired Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). RRSPs are not only important for retirement savings, but they are tools for tax deferral, which means the money you deposit won’t be taxed until you withdraw it. TFSAs, on the other hand, are non-taxable accounts, which means any income from investments made through this type of account won’t get taxed, even when withdrawn.

It’s critical to watch your annual contribution limits for both RRSPs and TFSAs to avoid penalties for over-contribution. Capital gains earned on income in a RRSP are not taxable when the gain is realized, i.e. sale is made, but rather when the funds are withdrawn. This allows you to defer taxes to a later period, which could be more advantageous depending on your future tax situation.

“These are both great ways to save yourself from being taxed on your investments, which is why every investor should look into them,” says Ms. Ricchio. “It’s important to note that the annual contribution limit for TFSAs in 2024 is $7,000, but you may be able to increase your contribution amount if you haven’t taken advantage of contributions in previous years.”

Claim your expenses.

One common mistake retail investors make is not claiming their carrying charges and other expenses. “Carrying charges for investments generally include interest on borrowings to invest, fees to manage or take care of your investments, or fees paid for advice on buying or selling a specific share or security,” explains Ms. Ricchio.

Maximize your credits.

For those investing in companies that issue dividends, the key factor is whether you receive eligible or non-eligible dividends. Eligible dividends come with an enhanced dividend tax credit, which is why they are taxed more favourably than non-eligible dividends and have lower taxable income. Non-eligible dividends come with a lower dividend tax credit, thus resulting in higher taxable income.

Those with foreign investments should claim the Foreign Federal Tax Credit (FFTC) on eligible income, which allows for a credit of up to 15 per cent for any foreign tax withheld at source on property income (other than income from real property). This credit cannot exceed the Canadian tax payable on the foreign income. “Making sure you file accurately helps you get all possible credits and deductions, and avoid situations such as being taxed twice on the same income – that is, taxed in a foreign country and on your Canadian tax return,” says Ms. Ricchio.

Need help during tax time?

Many DIY investors prefer a hands-on approach to taxes, and a solution like TurboTax is ideal, thanks to a guided process that covers all types of investment incomes, including stocks, bonds, mutual funds, ESPPs, rental properties, crypto and everything in between.

But if you need more support, opt to work with a tax expert with TurboTax Live Assist & Review, which gets you unlimited tax help and guidance via phone, email or chat as you prepare your return, plus a final review before you file. Turbo Tax experts have an average of 10 years of tax experience, so you can feel confident your taxes will be done right.

If you prefer to hand off your taxes, you can have a tax expert complete your return from start to finish with TurboTax Live Full Service. An expert can file your taxes in as little as one day, provided all your documents are ready.

The right solution can lead to the best possible outcome for your taxes — and go a long way in helping you correctly claim your investment income and expenses at tax time.

Want a curated list of recommended articles to help you make the most of this year’s tax filing? Take this quiz for tailored tax tips.

Advertising feature produced by Globe Content Studio with TurboTax. The Globe’s editorial department was not involved.

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