Hello Brad,
Before I answer how to report stock transactions in an investment business for income tax purposes, I would reiterate my earlier statement as whether an individual has an investment business as many people confuse the activity "Day Trading" as a license to consider themselves a business, when the facts may not support that determination.
"What constitutes Day Trading or professional trading as a business rather than a hobby or modest supplement to your income has several considerations apart from how long the asset is held including but not limited to the amount of time spent on the activity, the level of knowledge or expertise in the endeavor, and the amount of income derived from the activity. When trading transactions occur as a business, the Gain or Loss are recorded as income gains or income losses. Additionally, the business may incur expenses apart from the limited investment expenses in conducting their business, such as the capital in computer equipment, or the expense of trading publications and a home office. To aid you in making your self-determination please review IT-479r Transactions in Securities, especially paragraph 11."
In reply to how to report those stock trading transactions for income tax purposes, as anyone will note you cannot report negative income for "Gross Sales, Commissions or Fees...", that is because you are "Trading". Consider the financial asset as you would any other capital asset being bought and sold as a business, which is reported in the Cost of Goods Sold section of the T2125, as well as for your records in bookkeeping. There would be an Opening Inventory, Purchases, Direct Wages costs, Subcontracts, and Other Costs, all of which sums to an overall Cost of Goods. Next you determine the value of your Closing Inventory. The difference from your Cost of Goods and your Closing Inventory determine if you had a Profit or Loss in your trading. For reference, please review “Part 3D – Cost of goods sold and gross profit” in the guide T2125 “Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 2 – Income”. See: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002/t4002-4.html#...
Note, there are special considerations and treatment for assets ("stocks") being brought into the business as opening inventory. Additionally, I would like to re-emphasize the importance treating this endeavor as any other business trading in goods, where you would maintain accurate records and bookkeeping of all transactions, as well as a log of your time allocated to this business activity. Should you receive a Supplemental Review request or an Audit from the CRA to substantiate your declarations, including claims of a loss, these records would be essential in your reply.
Intuit offers many value added services including QuickBooks On-Line to better manage your business reporting and records, as well as TurboTax Online and Live for your income tax reporting.
