Skip header Skip to main content
A close-up of someone working from their home office.

What to Know About Frequent Trading in Your TFSA, FHSA and Other Registered Accounts

Written by The Inspired Investor Team | Published on May 25, 2021

Investing Academy.  Knowledge Supports Success. Visit now.

Is a Tax-Free Savings Account (TFSA) always tax-free?  What about a First Home Savings Account (FHSA), which offers a similar tax-free advantage for first-time homebuyers? It would be easy to assume tax-free always means tax-free, but there are some instances when income earned in a registered account – including investment income and realized capital gains – may be subject to income tax. Let's take a look.

First, a quick review of how TFSAs work: You can hold stocks, options, exchange-traded funds (ETFs), mutual funds, bonds and guaranteed investment certificates (GICs) in your TFSA, as long as they are qualified investments. You can also hold foreign investments in a TFSA, but a foreign government may withhold tax on the foreign-sourced income received by the TFSA, which might reduce your return overall. (Tip: a W-8BEN form may help you reduce the withholding tax rate on U.S. income you may receive in your account.) The federal government sets TFSA contribution room each year (indexed to inflation). Plus, contributions to a TFSA are not tax deductible, unlike with RRSPs, but you also won't pay taxes or penalties when withdrawing funds.

Likewise, FHSAs are restricted to qualified investments, subject to an annual contribution limit and do not incur taxes on qualified withdrawals. If you fall afoul of any of these rules (holding non-qualified investments or exceeding contribution room, for example) the plan is subject to tax.

It's important to remember that TFSAs and FHSAs are intended for investing and growing your savings over time. They are not meant for frequent trading, running an investment business or day trading. If you trade extensively in your TFSA or FHSA, the Canada Revenue Agency (CRA) may consider it "carrying on a business." Any income (dividend and interest) and the full amount of realized gains (net of any realized losses) would be subject to tax.

How much trading is too much? The CRA hasn't provided precise guidelines. However, in a 2018 Income Tax Folio (a technical publication that detail the agency's interpretation of the law as it applies to income taxes), the CRA states, "The determination of whether a particular taxpayer carries on a business is a question of fact that can only be determined following a review of the taxpayer's particular circumstances."

What about frequent trading in other registered accounts? Other registered plans, such as RRSPsRRIFs and RDSPs, are generally also taxed on income earned from carrying on business, although the exact rules and consequences may differ. As for RESPs, if the CRA considers that an RESP is carrying on a business, it can revoke the plan's registration and therefore its tax-sheltered status.

What does the CRA take into account? Among the key factors it considers are:

  • Frequency of transactions (to determine if there's a history of extensive buying and selling of securities)
  • Period of ownership (to see if securities are usually owned only for a short period of time)
  • Knowledge of securities market and time spent studying the market
  • Financing (to determine if security purchases are financed primarily on margin or by some other form of debt)
  • Type of shares (to see if they are normally speculative in nature or of a non-dividend type)

The information provided in this article is for general purposes only and does not constitute personal financial or tax advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.

RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence.
© Royal Bank of Canada 2023.

Any information, opinions or views provided in this document, including hyperlinks to the RBC Direct Investing Inc. website or the websites of its affiliates or third parties, are for your general information only, and are not intended to provide legal, investment, financial, accounting, tax or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Direct Investing Inc. or its affiliates. You should consult with your advisor before taking any action based upon the information contained in this document.

Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. If you are not currently a resident of Canada, you should not access the information available on the RBC Direct Investing Inc. website.

A wire head wearing a hat connecting last month's top traded stocks.

Top 10 Traded Stocks and ETFs in February 2024

Here's what RBC Direct Investing clients traded and added to watchlists in February.

Two hands holding up a clock

Be Strategic: 5 Things to Keep in Mind When Investing

From watching your emotions to the impacts of inflation to asset allocation, here are a few considerations when you invest.

Houses placed under glass container.

Will I Get a Tax Slip for the New First Home Savings Account?

Find out where and when to expect your FHSA tax slip.

You Know More Than You Think

A guide to investing in stocks.
Find out more