From a CRA Reassessment to a $31,000 Win: How We Successfully Defended an Active Trader

Imagine filing your tax return after a tough year in the markets, expecting a meaningful refund, only to receive a letter from the Canada Revenue Agency (CRA) denying it entirely.

That was the situation our client faced.

After reporting a significant trading loss from active stock and cryptocurrency trading, the CRA reassessed his 2024 tax return and disallowed the full $97,700 business loss. The reassessment increased his tax liability by approximately $31,000, wiping out his expected refund and replacing it with a sizeable tax bill.

He came to Capex CPA looking for answers and, more importantly, a solution.

The Core Issue: Business Income vs Capital Loss

At the heart of the reassessment was a familiar CRA issue for active traders:
Was the trading activity a business, or was it capital investing?

The CRA took the position that our client’s trading activity was on account of capital. Under that characterization, the loss could only be applied against capital gains. Since the client had no capital gains for the year, the loss provided no tax relief at all.

We disagreed.

Based on the facts, this was not passive investing. This was an active, systematic trading operation, and under the Income Tax Act, the resulting loss should be treated as a business loss, fully deductible against other income.

Our Strategy: Building a Fact-Driven Objection

A CRA reassessment is not the end of the road. We immediately filed a formal Notice of Objection and prepared a detailed submission to the CRA Appeals Division.

Our approach was simple but disciplined:
let the facts do the work.

We focused on demonstrating the commercial nature of the trading activity using the same indicators relied on by the CRA and Canadian courts.

Key elements of our case included:

High Frequency and Volume of Trading
The client executed over 9,700 dispositions in a single year across platforms such as Questrade, Wealthsimple, and multiple cryptocurrency exchanges. This level of activity is inconsistent with passive investing.

Significant Time Commitment
In addition to full-time employment, the client devoted approximately 15 to 25 hours per week to market research, trade analysis, monitoring positions, and executing trades.

Systematic and Business-Like Conduct
The trading activity was carried out in an organized and methodical manner. The client continuously refined strategies, responded to market conditions, and used professional tracking software such as Koinly to maintain accurate records.

Clear Intention to Profit
The objective was to generate income through short-term market movements. While the year resulted in a loss, profit-seeking activity in volatile markets inherently involves risk. Both gains and losses were realized, consistent with a trading business.

Strong Documentation
Every transaction, expense, and interest charge was supported by third-party brokerage statements, exchange reports, and lender documentation, providing a complete and credible audit trail.

The Result: CRA Reverses the Reassessment

After reviewing our objection and supporting documentation, the CRA Appeals Division agreed with our position.

The reassessment was reversed in full.

The client’s $97,700 business loss was reinstated, eliminating the additional tax assessed and restoring his refund. In total, the successful objection resulted in approximately $31,000 in tax savings and a clean resolution with the CRA.

What Active Traders Can Learn from This Case

This outcome highlights several important lessons for anyone trading stocks or cryptocurrencies:

  • The business vs capital distinction matters and can have massive tax consequences

  • Detailed record-keeping is essential when defending trading activity

  • CRA reassessments can be challenged with the right strategy and evidence

Most importantly, proper tax treatment is not automatic. It has to be earned, supported, and defended.

Final Thoughts

At Capex CPA, we regularly help clients navigate CRA reviews, audits, and appeals involving complex trading activity. This case is a reminder that with the right facts and a disciplined approach, even a significant CRA reassessment can be successfully overturned.

If you are an active trader and have had trading losses denied or are facing CRA scrutiny, professional guidance early in the process can make all the difference.