Let's say I am either a resident of the US or Mexico. If I have a stock I have held for more than 12 months while abroad, and then sell it within the first week of my arrival in Canada, would it be considered a short-term or long-term sale for capital gain tax purposes? Does the holding period for foreign individuals begin from the time of purchase or from their time of arrival in a new country?
In Canada, there is no distinction between short-term and long-term capital gains tax. Instead, they have something called the inclusion rate when calculating your taxable income based on capital gains. As of 2023, the inclusion rate is 50%, meaning only half of your capital gains are included when computing your taxable income.
For example, if you have $100,000 CAD in capital gains, applying the 50% inclusion rate would result in $50,000 CAD of taxable income.
Business income vs Capital income
Another thing that is crucial to note is that Canada distinguishes between income derived from capital and income derived from business. The 50% inclusion rate applies only to the former.
In Canada, day trading falls under the category of business income. Consequently, if you engage in frequent day trading, you won't be eligible for the 50% inclusion rate. Instead, you'll have to declare the entire amount of capital gains (100%) as taxable income.