Day trader loss for year 2007 and 2008 against job income of myself and spouse?

Question

we lost $12000 in joint account with my wife as day trader and made $ 2500 in mutual fund bought in 2004 and 2005 and sold it in 2007 as we worked night shifts.so claimed in income tax as day trader (every day avg, 3 trades done ) so shown that $12000 as trading loss against our job income in same year and had shown mutual fund income as capital gain.

still income tax assessment is under process but looking at child tax benifit in july it seems that crc has not considered as business loss for what ever reasonas

i read column in the globe and mail as per that i understood day trader as business loss

so far in 2008 we have loss in joint account as day trader worth $ 47000.no capital gain in mutual fund IN 2008.

in 2006 i had capital gain of $5000 what should be my action so that i can successfully claim trading loss as business loss against our job income from 2007 and 2008 respectfully.

i had sent my broker's trading summeary of more then 30 pages along with income tax statement

Answer 1

Losses from trading securities can be on income or capital account.  If on income account (and you sound like you may have a case based on your level of activity) those losses can be deducted from your employment income.  If on capital account, they can only be deducted against capital gains in the year, the three previous years, or in the future.  

Whether a loss is income or capital can be a complicated determination that needs to be made on all the facts.  Good facts for you are the level of activity and intent to trade for profit rather than hold for the long term.  Bad facts include (possibly, and no offence meant) your apparent lack of sophistication and your treatment of other security transactions (the mutual fund) as capital in nature.  For the amounts involved you should talk to an accountant so that you put together a good case.

Answer 2

here is some information regarding taxes , it can only be considered a business loss if a business was involved and the stocks were purchased through a registered business. and the stocks would be included in the business assets etc.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/...

Answer 3

I agree mostly with Shaitan's comments, adding that I don't believe you can claim the mutual fund as a capital gain while expecting CRA to accept the day trading as a business loss.  It's either one or the other, if you are treating the trading as non capital, ALL your trading transactions are non capital.  As I understand it,  you can make an election that trading is to be considered capital or non capital, and I think it's very possible your 2006 capital gain on the mutual fund means any subsequent trades became capital.

FWIW I also agree with the other poster, if you don't know the answers to these questions, and given your losses, you really need to stop this practice, AND get a competent accountant to deal with the tax issues involved.  But that's just my unsolicited advice.