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Stay Connected with TaxTips. Internet Explorer - Use compatibility view for calculators to work properly! Are Your Investment Gains and Losses Capital or Income? For most taxpayers, their gains and losses from the sale of securities are treated as capital gains and losses.

A capital loss can only be used to reduce or eliminate capital gains. For some taxpayers, such as day traders, the gains and losses are determined to be business income, not capital.

The business loss is deductible from other income. Both the conduct and intentions of the taxpayer are examined to determine whether to treat the securities transactions as income or capital.

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The gain or loss on the short sale of shares is considered to be an income gain or loss, unless an election has been made under s. In Federal Court of Appeal Rezek v. Canada FCA , it is stated that any broker's fees, rental fees and compensatory dividends paid by the short seller between the short sale and the close out will reduce the profit or increase the loss.

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It is possible that a taxpayer may have some securities transactions which are capital transactions, and in the same year have other securities transactions which are income transactions. For example, a day trader could have two investment accounts, one for day trading, and one for investments which are not frequently traded, and are held as long term investments.

A taxpayer can elect under s.

The election is made by filing form T , and applies for Quebec taxation purposes also as per Quebec Taxation Act s. This election cannot be made for securities owned by. The election applies to all sales of Canadian securities by the taxpayer in the year of the election or future years , and cannot be rescinded.

The term "Canadian securities" is defined in s. According to the CRA interpretation bulletin ITR , a Canadian security includes such a security that is sold short.

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