How to Report Stock Options on Your Tax Return

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The acquisition date of the rights or options is the date you acquired the original shares or units. Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units. If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make taxes on trading options capital gain.

Show download pdf controls. Work out the correct treatment of rights or options On this page: No-cost rights or options Rights or options you paid for No-cost rights or options The following steps apply to: Go to question 2 No: Go to question 3 2. See answer 1 No: See answer 2 3. Did you exercise the rights or options? See answer 3 No: See answer 4 Answer 1 The shares or units you acquired when you exercised the rights or options are subject to capital gains tax CGT.

The acquisition date of the shares or units is the date you exercised the rights or options to acquire the shares or units. Answer 2 If you did not exercise the rights or options, you disregard any capital gain or loss on the sale or expiry of the rights or options. If you exercised the rights or options before that date, you disregard any capital gain or loss you make when you dispose of the shares or units that you acquired. Answer 3 The shares or units you acquired when you exercised the rights or options are subject to CGT.

The acquisition date of the shares or units is the date you exercised taxes on trading options rights taxes on trading options options. Answer 4 If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. If the capital taxes on trading options are less than their reduced cost base, you make a capital loss.

Rights or options you paid for The following steps apply to rights or options to acquire shares or units that you: Go taxes on trading options question 4 2. Go to question 3 No: See answer 1 3. Go to question 5 No: See answer 4 4. See answer 2 5. Go to question 6 No: See answer 5 6. Taxes on trading options answer 5 No: See answer 3 Answer 1 You disregard any capital gain or loss you make on the sale or expiry of the rights or options. Answer 2 If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.

Answer 5 The shares or units you acquired when you exercised the rights or options are subject to CGT. Market valuation for tax purposes Acquiring rights or options Exercising rights or options Step-by-step decision process for determining the correct CGT treatment of rights and options. Go to question 3.

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Ads keep this website free for you. Looking for US tax information? Look in our Directory. Stay Connected with TaxTips. 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. When your options are treated as capital gains, their disposition is reported on Schedule 3 Part 3, where publicly traded shares are reported. Gains or losses realized by a writer seller of naked uncovered options are normally treated as income.

However, according to ITR Transactions in Securities Archived , paragraph 25 c , CRA will allow these to be treated as capital gains, provided this practice is followed consistently from year to year.

For taxpayers who record gains and losses from options as income , the income from options sold written is reported in the tax year in which the options expire, or are exercised or bought back. When call options are purchased and subsequently exercised, the cost of the options is added to the cost base of the purchased shares.

If the call options are not exercised, the cost is deducted in the tax year in which the options expire. If the call options are closed out by selling them, the proceeds are included in income, and the original cost is written off, in the tax year in which the options are closed out. When put options are purchased, the cost is written off in the year in which the options expire, are exercised, or are closed out by selling them.

For taxpayers who record gains and losses from options as capital gains or losses , the timing is a little trickier for options which have been sold. The following table shows the timing of the recording of gains and losses on options that have been sold or purchased.

Event Timing of proceeds reported for tax purposes Tax treatment when options are sold: To revise the capital gains from the previous year, a T1Adj would have to be filed.

See our article on changing your tax return after it has been filed. Of course, if the prior year tax return has not been filed when the options are exercised, the prior year return can be done omitting the gain, eliminating the need for a later revision. Usually, the taxpayer would benefit from filing the T1Adj.

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 option , or deducted from the cost basis of shares purchased put option when the option is exercised.

This applies even if the proceeds were taxed in a previous year, and no T1Adj was filed to reverse this. Therefore, double taxation will occur if the T1Adj is not filed. During the year you sell 3 Put options of the same underlying and they expire out of the money. Based on the above table, each transaction should be treated as capital gain in the year sold. What if on the 4th option sold of the same underlying, you end up with the underlying shares? Clearly you reduce the cost of the shares assigned by the value of the premium received on the 4th sale.

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? Each sale of put options is a separate transaction, and not related to the next sale of put options. When the 4th option is exercised, the cost of the shares cannot be reduced by the premiums collected on the previous put options.

This is not affected by the timing of the sale of the shares. We traded options for about a decade, and in the end finally decided to quit, because. Leave option-trading to the professionals. February 20, The browser does not support JavaScript. Please access the web page using another browser.

See Reproduction of information from TaxTips. Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage.

Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site. Timing of proceeds reported for tax purposes. Tax treatment when options are sold: Tax treatment when options are purchased: