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Taxes in Canada For Funded Traders (Prop Firms)

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Introduction and Disclaimers

Since the main focus of my page and YouTube channel is the funded trader evaluation programs, a lot of time I get the question “what are the taxes for funded traders?”. A fair question of course. Luckily it’s pretty straight forward.

Before I get started, the normal disclaimer everyone gives on anything tax and/or futures related. I’m just a random Canadian, I know next to nothing about taxes, and everything below is information to the best of my knowledge but isn’t meant to be advice. Please go find a tax accountant with any specific questions, below is all I’ve got. And it’s just information. Not advice.

If you are interested in trading futures, be sure to check out my Reviews of Funded Futures Trader Evaluations. I update it every day.

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Canada Income Tax On Futures Prop Firm Profits – Short Version

  • Profits are treated as normal income.
  • You won’t receive any tax statement forms from the companies.
  • You will submit a form W8-BEN to the company which basically says you don’t live in the US and will be paying taxes in your home country. The company will ask for this the first time you request a payout.
  • You do not pay taxes in the US to the IRS. You live in Canada, you pay Canadian taxes.
  • It is up to you to track your payouts and pay taxes on them.
  • Everything else – consult a tax person.

Canada and Income Taxes on Futures Profits from Prop Firms

Finally let’s get to the topic of the article – taxes for funded traders who are Canadian. Luckily, taxes are fairly simple with these programs.

I mentioned earlier please do your own research on how you’ll be taxed in your own country, and that still holds true. Basically the punch line is would be treated however you would treat if you got paid by a USA company as a contractor. Remember, you are NOT trading your own capital. You are basically working for a company as a trader of their capital, and for that they pay you 80% (or whatever rate). So most likely you won’t be paying capital gains. You don’t have to track every trade. It’s no different than if a US based company hired you as a freelance graphic design contractor and paid you per project. You are a freelance trader.

Futures Trading and Tax Forms

Also, you won’t get any statement from the company in terms of a tax form for your taxes as a funded trader. USA companies are obligated to issue 1099’s to USA based contractors, but for people they pay outside the US, they do not. There’s really no reason, the purpose of the 1099 is to inform the IRS, the US tax authority, about transactions and payments to US based contractors who need to pay taxes. The IRS could care less than Mr. Trader in Fiji received $20,000, because the IRS isn’t going to be collecting tax on it.

I should mention at some point in the year you will be asked to provide a form to the company, an IRS form no less, that basically states that you live outside the US, the company doesn’t need to withhold taxes, and you are responsible for paying taxes in your own country. This form actually doesn’t get filed with the IRS, the funding company keeps it on file. That way if they are ever audited, and the IRS says “hey you are paying Mr. Trader why aren’t you filing a 1099?”, the funding company can whip out your form showing you don’t reside in the US and they are not obligated to hold nor report your income. That form is a W8 BEN for most people, but it can vary depending if you operate as a person or business and some other reasons I don’t really know. (Remember, this is information, not advice).

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Conclusion

May I first reiterate I’m definitely not a tax expert, and that should be clear by the above. But I do know enough to let you know that when people start talking about capital gains, tracking every trade, what forms will I receive, I can answer the basics. US Based – you’re a 1099 contractor, you’ll receive one after year end. Pay taxes. Outside the US – you’ll receive nothing for your taxes as funded traders, and it’s your responsibility to pay taxes on what you made. Tracking shouldn’t be that hard, even if you withdrew every single week, it’s 52 payments, add them up. Pay taxes as ordinary income. Done.

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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

You can read more here: Risk Disclosure

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The external links on my site and in my video descriptions to trader evaluation companies and software companies are primarily affiliate links. I earn a commission from these companies on any sale made from people visiting these links. That said, I only recommend companies and software I personally use and actually do recommend. Believe me, I turn down a lot of companies who approach me. You can read my full Affiliate Disclosure here.

Additional Disclosure:

The content provided is for informational purposes only. I do my best to keep the content current and accurate by updating it frequently. Sometimes the actual data, rules, requirements and other can differ from what’s stated on our website. CanadianFuturesTrader.ca is an independent website. You should always consult the rules, faqs, knowledge base and support of any of the websites and companies we link to or talk about on our site. The information on their site will always be what ultimately dictates the current rules of their program, software or other. While we are independent, we may be compensated for advertisements, sponsored products, or when you click on a link on our website. The contributors and authors are not registered or certified financial advisors. You should consult a financial professional before making any financial decisions.