Option premium payment tax treatment
Timing of proceeds reported for tax purposes. When the 4th option is exercised, the cost of the shares cannot be reduced by the premiums collected on the previous put options. Gains or losses realized by a writer seller of naked uncovered options are normally treated as income. The only problem is that the Income Tax Act requires the options proceeds to either be added to the proceeds from the sale of shares call optionor deducted from the cost basis of shares purchased put option when the option premium payment tax treatment is exercised.
Usually, the taxpayer would benefit from filing the T1Adj. Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage. Ads keep this website free for you.
Gains or losses realized by a writer seller of naked uncovered options are normally treated as income. Please access the web page using another browser. Ads keep this website free for you.
This applies even if the proceeds were taxed in a previous year, and no T1Adj was filed to reverse this. To revise the capital gains from the previous year, a T1Adj would have to be filed. However, option premium payment tax treatment you are in the business of buying and selling stock, then your gains and losses from options will be treated as income on income account - see capital or income.
Based on the above table, each transaction should be treated as capital gain in the year sold. See Reproduction of information from TaxTips. When call options are purchased and subsequently exercised, the cost of the options is added to the cost base of the purchased shares.
The following table shows the timing of the recording of gains and losses on options that have been sold or purchased. When put options are purchased, the cost is option premium payment tax treatment off in the year in which the options expire, are exercised, or are closed out by selling them. Leave option-trading to the professionals. Event Timing of proceeds reported for tax purposes Tax treatment when options are sold:
This is not affected by the timing of the sale of the shares. However, according to ITR Transactions in Securities Archivedoption premium payment tax treatment 25 cCRA will allow these to be treated as capital gains, provided this practice is followed consistently from year to year. When your options are treated as capital gains, their disposition is reported on Schedule 3 Part 3, where publicly traded shares are reported. When the 4th option is exercised, the cost of the shares cannot be reduced by the premiums collected on the previous put options.
For taxpayers who record gains and losses from options as capital gains or lossesthe timing is a little trickier for options which have been sold. Clearly you reduce the cost of the shares assigned by the value of the premium received on the 4th sale. See Reproduction of information from TaxTips. We traded options for about a decade, and in the end finally decided to quit, option premium payment tax treatment.