If you’re trading Contracts for Difference (CFDs) in Canada, congratulations, you’ve chosen one of the riskiest financial instruments out there. But that’s only half the story.
The other half is taxes. Are your CFD profits taxed lightly or heavily? That depends not on the instrument itself, but on how you behave, at least according to the Canada Revenue Agency (CRA).
You can either understand this now or learn it the hard way later. So let’s get into it.
Two Tax Paths: Capital Gains or Business Income
CFD trading in Canada comes with tax intricacies that can weigh heavily on profits. The Canada Revenue Agency (CRA) doesn’t simply accept “CFD profits” as casual income. Instead, they’ll scrutinize your trading behaviour and label it one of two ways, each with very different implications for your tax bill.
The CRA won’t tell you ahead of time which one applies. You’re expected to figure it out yourself. But if you choose wrong, they’ll happily correct you and apply interest and penalties on top.
Capital Gains
CFD profits treated as capital gains enjoy a favourable tax rate of only 50%. So, if you net CAD 20,000 on a CFD broker, CAD 10,000 gets added to your taxable income.
But this path has trade-offs:
- You can’t deduct losses from other income, only from other capital gains.
- Deductions are limited to acquisition costs (trade fees, commissions).
- Gains and losses are recorded on Schedule 3, Line 12700.
- Records of cost base and disposal prices must be kept meticulously.
Business Income
If the CRA concludes your CFD trading resembles a business, the game changes:
- 100% of profits are taxable.
- You can deduct trading software, data feeds, home office costs, and courses.
- Losses can offset any type of income, and can be carried back three years or forward twenty years.
- Self-employment status means CPP contributions are due.
- File using Form T2125 under business income.
Which is better? That depends. But the CRA doesn’t care what you prefer. They look at what you do on a daily basis.
How the CRA Decides
The CRA uses what’s called the “badges of trade” test. It’s a fancy way of saying: “Are you doing this like a professional or a hobbyist?”
Here’s what they look at:
- Are you trading every day?
- Are you using leverage?
- Do you depend on trading for income?
- Do you have a repeatable system?
If the answer to most of those is “yes,” you’re considered a business. You might not have registered it, but it doesn’t matter. The CRA will treat you like one. And they’ll tax you accordingly.
If you’re trading once a week between your accounting job and bedtime, you will probably be taxed on the capital gains. But again, it’s not just frequency. It’s about intent and consistency.
The 2024 Capital Gains Rule
Let’s talk numbers. For decades, Canada taxed capital gains at a 50% inclusion rate. Then, in June 2024, the budget intended to lift the inclusion rate to 66.7% for capital gains over C$250,000 . However, in early 2025, this was deferred to January 2026.
For now, the 50% rule remains . But if you’re trading CFDs seriously and doing well, you should be prepared for the CRA wanting a bigger piece of your profits soon.
What About Losses? They Matter More Than You Think
If you treat CFD trading as business income, losses are your safety net. You can carry them back three years, or forward twenty. That’s real flexibility, and it protects you.
Capital losses, on the other hand, are more limited. They only offset capital gains. So if you lose $30,000 this year and have zero gains to match it, you’re just stuck with the red ink until better years come along.
This is why classification matters so much. It’s not just about how much tax you pay when things go well. It’s also about how much you can recover when they don’t.
The Real Risk Is Misclassification
Here’s where most traders shoot themselves in the foot: they treat everything as capital gains to pay less tax. They don’t think long term.
Then one day, the CRA audits them. Looks at their activity. And says: “You were running a trading business. You owe us back taxes. Plus penalties. Plus interest.”
That’s the moment when they wish they’d filed properly.
If you’re unsure whether your activity on a forex trading app might be considered as business income, consult a tax professional. Someone who knows how to look at your situation objectively and help you get things straight.
A Quick Example
You make $80,000 in profits trading CFDs in 2024.
- As capital gains, you’re taxed on $40,000. Let’s say a 30% marginal rate: ~$12,000 owed.
- As business income, you’re taxed on the full $80,000. Same 30% rate: ~$24,000. But if you can deduct $10,000 in trading-related costs, you bring that down to $70,000 taxable. This means $70,000 × 30% = $21,000 owed in taxes.
Now flip the scenario. You lose $30,000.
- Capital loss: You can only use it against other capital gains, now or in the future.
- Business loss: You can deduct it from your job income, your spouse’s freelance earnings, or anything else you report.
When things go well, capital gains look great. When they go badly, business income rules give you more protection.
Record Everything or Regret Everything
If you want to keep the CRA off your back, record everything:
- Entry and exit prices
- Dates
- Trading fees
- Your rationale
- Whether you cried after the trade
Okay, maybe not the last one. But the rest is mandatory.
The Taxman Doesn’t Care About Your Intentions, Only Your Actions
CFD trading taxes aren’t complicated because of the code. They’re complicated because traders want to have it both ways: high risk, low tax. It doesn’t work like that.
You want low taxes? Trade like an investor. You want to trade like a pro? Pay like a pro.
You can’t ignore this. You can’t outsmart the CRA. What you can do is treat your trading like a business in every way, including how you handle your taxes.