Capital gains tax strategies and trading options
See Reproduction of information from TaxTips. This applies even if the proceeds were taxed in a previous year, and no T1Adj was filed to reverse this. Event Timing of proceeds reported for tax purposes Tax treatment when options are sold: Tax treatment when options are sold: Clearly you reduce the cost of the shares assigned by the value of the premium received on the 4th sale.
Usually, the taxpayer would benefit from filing the T1Adj. When call options are purchased and subsequently exercised, the cost of the options is added to the cost base of the purchased shares. What if on the 4th option sold of the same underlying, you end up with the underlying shares? Based on the above table, each transaction should be treated as capital gain in the year sold.
BUT can you further reduce the cost of the shares by including the first 3 premiums collected if the shares are sold in the same year? See our article on changing your tax return after it has been filed. During the year you sell 3 Put options of the same underlying and they expire out of the money.
When call options are purchased and subsequently exercised, the cost of the options is added to the cost base of the purchased shares. Ads keep this website free for you. We traded options capital gains tax strategies and trading options about a decade, and in the end finally decided to quit, because. Therefore, double taxation will occur if the T1Adj is not filed. 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 is exercised.
Stay Connected with TaxTips. Each sale of put options is a separate transaction, and not related to the next sale of put options. Therefore, double taxation will occur if the T1Adj is not filed. However, if 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. Usually, the taxpayer would benefit from filing the T1Adj.