Stock options canada cra

The tax consequences of investing with stock options on capital account are complex in comparison to directly investing in stocks.

When stock options are exercised, there is added complexity in calculating the adjusted cost base and capital gains for the underlying security. This differs from the tax treatment when the trading is considered to be on income account. The rules for determining whether trading is on capital account or income account are somewhat subjective and beyond the scope of this discussion. But some of the conditions the Canada Revenue Agency may use to determine that trading is on income account include the following:.

The CRA generally considers options trading to be on the same account as transactions for shares. Selling of naked call options is generally considered to be on income account, but the CRA will allow this to be considered on capital account provided that this is done consistently from year to year.

The general taxation rules for stock options on capital account dictate that a positive cash flow is immediately taxable as a capital gain. A negative cash flow cannot be claimed as a capital loss or reduction in capital gain until the options transaction is closed or the underlying shares are sold, in the case where shares are acquired due to the options being exercised.

The tax treatment of stock options on capital account is summarized in the table below. The possible opening transactions Buy Call Options, Buy Put Options, Sell Call Options, and Sell Put Options are shown in the top row and the possible closing transactions Options are Exercised, Options Expire, and Options are Closed are shown in the first column.

To determine the tax treatment of a particular options transaction, look at the cell corresponding to the relevant opening and closing transactions. In the case of selling call or put options where the options are exercised, the proceeds from the options sale are initially treated as a capital gain in the year of the sale.

Canada Revenue Agency (CRA)

But when the options are exercised, that capital gain is canceled. The extra paperwork required may be a motivation for some to avoid selling options that expire in a future year.

Referring to the table, there are a total of 8 different tax treatment scenarios for all the different combinations of opening and closing options transactions. No capital gain or loss is reported on the options.

When the options are exercised on January 14, , the cost of the options is subtracted from the proceeds to determine the capital gain or loss.

When the options expire, no further gains or losses are realized. This gain must be reported for the tax year. Calculating Capital Gains and ACB with Stock Options on AdjustedCostBase. It includes support for stock option transactions on capital account. This can save stock option investors from the great time and aggravation that results from manually performing these kinds of complex calculations.

This means that when adding an options transaction, the underlying security should be selected. If the options transaction has not yet been closed i. For example, if you buy call options for shares and sell options while the remaining expire, you can add two opening options transactions for shares each, while setting the closing portions of the transactions accordingly. Example 1 on AdjustedCostBase.

First, add OPT as a security in your account. Next add a new transaction. For the number of shares enter As expected, there is no capital gain or loss just yet. Note that you do not add a new transaction for the closing transaction portion. The opening and closing transactions are joined together in a single transaction. Example 7 on AdjustedCostBase. Next add a new transaction for the purchase of shares of OPT as follows:.

Now add a new transaction for selling the covered call options.

Shares vs Stock Options | Mike Volker – Vancouver's Green Angel and Tech Innovator

The form should look as follows:. Thank you for this great site.

I believe there is a small error in the last sentence of Example 6…. Am I missing something? If not would you consider adding this? Thanks for your suggestion — this may be added in the future. It does not appear as though the edit feature for option transactions allows you to go back and change the entry to a foreign currency transaction. It seems as though if you miss that feature on initial entry as I have done on several occasions , and your transaction is indeed in a foreign currency, you need to delete the transaction and start again.

I overlooked the fact that there is no feature coverts option transactions to foreign currency amounts. I noticed that someone in the thread has already suggested if you can add a feature on AdjustedCostBase. I would like to know if this feature is coming soon, if not, would you kindly consider? I do quite a bit of option trading in foreign currency, and adding a feature for it would be a great addition to your website.

Will a feature like this be made available soon? Hi, in your first example, if a person had bought the option using foreign currency, would the capital loss be based on the expiry date exchange rate or when the option was purchased? Hello, for tax claim purposes, does superficial loss apply to option trading.

For example, if I purchase a call option and it expires after 10 days, is it considered a superficial loss because it expired within 30 days of the purchase? Does the same apply if I close the position, or if I exercise the option? Also, if I purchase a call option and then sell the underlying stock at a loss within 30 days, I believe it is considered a superficial loss. But if I exercise the option at a time beyond the 30 days, does it affect the sale of the shares such that the loss can be claimed?

Some of the more common situations include the following…The disposition results from the expiry of an option. I would assume that closing or exercising options could trigger the superficial loss rule as these scenarios are not listed above.

If you exercise a call option more than 30 days after selling the underlying shares then the superficial loss rule would not be triggered, assuming no other transactions took place, since there is no disposition within the superficial loss period. Your email address will not be published. Notify me of followup comments via e-mail. You can also subscribe without commenting. Adjusted Cost Base and Capital Gains for Stock Options 13 Replies. But some of the conditions the Canada Revenue Agency may use to determine that trading is on income account include the following: When the trading is characteristic of a professional trader Frequent trading or short holding periods Extensive knowledge and time spent researching the markets Substantial use of debt to finance the purchases Use of special information not available to the public The CRA generally considers options trading to be on the same account as transactions for shares.

Buy Call Options Buy Put Options Sell Call Options Sell Put Options Options Expire The cost of the options is a capital loss in the year the options expire. Example 1 The proceeds from the sale of the options are a capital gain in the year the options are sold. Example 5 Options are Closed The cost of the options is deducted from the proceeds of the sale to determine the capital gain or loss in the year the options are sold to close.

Example 2 The proceeds from the sale of the options are a capital gain in the year the options are sold. The cost of the options is a capital loss in the year the options are bought to close. Example 6 Options are Exercised The cost of the options plus the cost of the shares is added to the ACB of the underlying security when the options are exercised.

Example 3 The cost of the options is deducted from the proceeds of the shares when calculating the capital gain or loss on the sale of the shares when the options are exercised. Example 4 The proceeds from the sale of the options are a capital gain in the year of the sale, but the capital gain is cancelled on the exercise date if the gain was reported on a previous year's tax return, that year's return should be amended.

The proceeds from the sale of the options are added to the proceeds from the shares to determine the capital gain on the sale of the shares when the options are exercised. Example 7 The proceeds from the sale of the options are a capital gain in the year of the sale, but the capital gain is cancelled on the exercise date if the gain was reported on a previous year's tax return, that year's return should be amended. The cost of the shares, less the proceeds from the sale of the options, is added to the ACB of the underlying security when the options are exercised.

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Subscribe in a reader Subscribe to Blog by Email. The cost of the options is a capital loss in the year the options expire. The proceeds from the sale of the options are a capital gain in the year the options are sold.

The cost of the options is deducted from the proceeds of the sale to determine the capital gain or loss in the year the options are sold to close. The cost of the options plus the cost of the shares is added to the ACB of the underlying security when the options are exercised.

The cost of the options is deducted from the proceeds of the shares when calculating the capital gain or loss on the sale of the shares when the options are exercised. The proceeds from the sale of the options are a capital gain in the year of the sale, but the capital gain is cancelled on the exercise date if the gain was reported on a previous year's tax return, that year's return should be amended.