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Tax treatment of options in Canada - Non trader


beerbaron
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I just initiated a synthetic long position in AAPL (my first option trades) because there was asymetric return VS the stock. Now as I start reviewing the tax implications of the options in Canada my head hurts.

 

Here my facts:

  • I would be considered as a non-trader as PER CRA
  • I wrote 400 Naked LEAP Jan-2015 Puts
  • I bought 400 LEAP Jan-2015 Calls

 

Now reading IT-479R it seems I can decide if the options I write to be treated as capital gain or income for as long as I'm consistent. First, why would anybody want to declare it as icome?

 

Naked puts treatment

If options expire worthless => Need to declare the capital gain at exercice date. (Put premium received - Cost of transactions)

If options expire in the money => Need to declare the Gain/Loss as capital gain based on the following (Put premium Received - Exercise Value - Cost of transactions)

Am I getting this right?

 

Call treatment

If option expire worthless => Need to declare the Loss. (Cost of option + Costs of Transactions)

If option expire in the money => Need to declare the Gain/Loss based on the following (Exercice Value - Cost of option - Cost of transactions)

Am I getting this right?

 

Thanks

BeerBaron

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Sounds right to me.

 

By, if call options expire in the money .... you mean you are exercising them.  In this case you can avoid the tax indefinitely if you have continuity of the position. 

 

No, I dont know why you would claim it as income, either, unless you had to. 

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By, if call options expire in the money .... you mean you are exercising them.  In this case you can avoid the tax indefinitely if you have continuity of the position. 

 

So if I take the payment in kind then I don't have to pay capital gains?

 

BeerBaron

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given that you have to file an ammended T1-ADJ if a written put is assigned instead of expires worthless in a new year, I usually add these two provisions to reduce headaches - either write options that are deep out of a money with slim chance of assignment OR ensure assignment is in the same year as it was written.

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