TFSA Investing v.s. Trading | Tax Free Savings Accounts | Discussion forum

You can read through this thread which discusses the subject:
https://www.highinterestsavings.ca/forum/tax-free-savings-accounts/what-is-excessive-trading-and-other-tfsa-risk-questions-re-taxation/

You can read through these threads on FWF that deal with the topic as well:

TFSAs and carrying on a business
https://www.financialwisdomforum.org/forum/viewtopic.php?p=539488&hilit=tfsa+frequency#p539488

Would CRA say this is capital gains or business income?
https://www.financialwisdomforum.org/forum/viewtopic.php?t=121641&hilit=tfsa+frequency

CRA vs TFSA Court rulings
https://www.financialwisdomforum.org/forum/viewtopic.php?p=685374&hilit=tfsa+frequency#p685374

TFSA - Would this scenario raise a CRA flag?
https://www.financialwisdomforum.org/forum/viewtopic.php?p=685800&hilit=tfsa+frequency#p685800

I think RedFlagDeals forums has some threads as well. Canadian Money Forum probably does as well if you can deal with the arseholes that post there.

It might be helpful to try and understand CRA's mindset. I have no access to the brain of CRA, but it seems to me the idea of TFSA was intended to allow people to make long term investments in what are generally seen as reliable stocks that will be boring but steady. It's not meant for something where you are flitting in and out without a strategy that CRA would recognize and that probably other investment professionals would not recognize either.
I don't know if that is helpful, but try to look at your investments the way a fund manager might. Professional fund managers don't make a huge number of trades, even though they are managing ginormous portfolios. This is what is defined as "investing", so it's what you need to also do. Or, make your life easier and just buy the funds; over the long haul, you are almost certain to be better off with some decent funds than with what you are doing now.
The temptation to think you could beat the market just by doing X or Y is strong, but it's where all kinds of people lose money, and so it is not really considered to be "investing". If what you are doing really worked in the long run, the very well paid fund managers would be doing it too, and chaos would reign. I don't think you will ever find them doing what you are doing.

Whether one is investing or dealing is based on intent, not the resulting profit or loss. It is similar to manslaughter and first-degree murder in criminal law. The victim is equally dead in both. But, the perpetrator's intent determines whether it was manslaughter or pre-meditated murder.

CRA does not pursue unsuccessful traders using their TFSA accounts because there would be no taxes collected on the resulting business losses.

Your friends who flip meme shares are not stock investors. They are actually stock speculators, a kind of trader.

The real world is not as simple as those introductory engineering course exercises. "Will this bridge hold N when it is a day old?" is easily answered objectively. "Will this bridge hold N after it is exposed to the elements for 50 years old?" is not.

If you have the chance, include some courses about chaos theory in your studies. Complex systems like economies, stock markets, and atmosphere are non-linear systems which defy precise predictability. That's why one cannot, for example, predict the exact temperature and weather for New Years Day 2022.

Norman is right.
Although I fully appreciate your criticisms of CRA's apparent arbitrariness, it's them that sets the rules. They don't care what your perspective is or how irrational they may seem to us. While I fully appreciate where you are coming from, you really would be better off keeping your hands in your pockets and getting ETFs which you can rebalance periodically. Don't let yourself get carried away by your friends' opinions. They are young and inexperienced just like you, and may be playing with fire unawares.

Chaos theory etc is well beyond my knowledge, but I would suggest you read up on rebalancing in investing. This will give you a mechanism to have some control but not so much that you will shoot yourself in the foot, your current path; and it will be based on the reality that this is the way that most people succeed in investing: buy, hold, rebalance; repeat. If you want, I can look up a book or two that I have read in the past that would give you some measurable criteria by which to do this. You can also buy ETFs that will do the rebalancing themselves, but, since you are the kind of guy who likes to control the situation, you would probably be better off holding several and doing the rebalancing yourself. Just don't get carried away by holding too many of them. I would say you don't need more than 3. The more money you accumulate, the more you might consider adding.
If you want to play around with other legitimate investments, do it outside of your TFSA, where you can deduct any losses.

Perhaps it's an investing vs trading issue, I think of it as an investing vs business activity issue, i.e. the TFSA prohibition is on conducting a "business" (of investing, or trading, or anything for that matter) within a TFSA.

And whether or not you are acting in a business-like manner is not determined arbitrarily by CRA, along with the ITA definition of "business" there is a body of jurisprudence that guides CRA in its determination of this issue. CRA archived IT Bulletin 459 (might be worth reading if you're concerned) had guidelines on this, it starts with "It is a general principle that when a person HABITUALLY does a thing that is capable of producing a profit, then he is carrying on a trade or business....."). Along with "habitually" I have also seen the words "regularly" or "continuously" used to determine if an activity is a business or not, so arguing about the dictionary definition of those three words is often the crux of the matter in any given situation. That's why there's no magic number of trades, or dollar amounts, etc, that can be given, it all depends.

You guys are probably right, but you have probably also confused this inquirer even further. From his perspective, if you are habitually making money, then you are doing exactly what you should be doing with your money. And, really, who can argue with that, rationally? Isn't that everyone's ideal goal? That's why Bernie Madoff's extensive wealthy client list never complained, because they were ALWAYS making money, according to what he reported to them, even though it wasn't true. They were thrilled, and the SEC didn't see anything wrong either.
The point is that CRA has its own views and that those prevail, no matter how ridiculous they may seem to TFSA Newbie (and me for that matter). That's what he needs to wrap his head around in order to not run afoul of CRA.

A stock investor intends to participate in the long term (5+ years) appreciation in the value of a successful business and any dividends such a business will pay to its investors. The short term fluctuations in the market price of the business are not important.

When the market price drops with no material change to the business, then there is a temptation for the investor to buy more, not sell. That's because the long term value of the business did not change. It is actually a welcome event to the investor when the same thing that cost $30 last month can now be purchased for $25!

In contrast, it is an unwelcome development for a stock dealer when the same thing that was bought for $30 last month can now be purchased elsewhere for $25.

Standing stop loss orders, especially ones that can trigger weekly, make no sense to an investor who is trying to accumulate a portfolio of investments.

"The point is that CRA has its own views and that those prevail, no matter how ridiculous they may seem...That's what he needs to wrap his head around....."

A popular urban myth, and bad advice. In fact, both the Tax Court and the Federal Court of Appeal history of decisions are what guide CRA precisely because CRA knows it is not the final authority, i.e. the interpretation of tax laws, like all laws, are ultimately determined by the courts. Judges do not take kindly to CRA ignoring previous decisions and people showing up for issues that have previously already been decided in the courts, so in fact CRA is very careful in what it does.