Tax treament for call / put options for shares

hi there,

situation :
constantly selling call and put options each month to get the premiums.
sometimes buy call spread options too
do so in both US & Aussie market

questions :
A. is the premium received each month considered as capital gain tax or income tax ?

B. case B : i sold a put option for 1 dollar on the 20 june 2020 where the put option expiry is 16 july 2021.

- is it capital gain event or is it income tax ?
- Do i need to declare the option premium received on the financial year 2020-2021 ( upon the premium receipt) or 2021-2022 ( after the options expired) ?


C. case C : i buy a call option for 1 dollar on the 20 june 2020 where the call option expiry is 19 Nov 2021.

- is it capital gain /loss event or is it income deductibles ?
- Do i need to declare the option premium paid on the financial year 2020-2021 ( upon the premium payment) or 2021-2022 ( after the options expired) ?


thank you in advance for your thoughts

 

A. Income likely

if on capital account selling the option is to time of the CGT event.
Same for selling

 

thanks Terry for your prompt response.

Another view that reckon it is a CGT event:

https://www.reddit.com/r/options/comments/j5ejg2/ato_australian_tax_treatment_for_options_trades/

refer to the credit trades section. however the ruling tht is given by ATO to that person seems to be relating to options related to real estate and I am not sure it works the same way for shares options.

happy to hear your thoughts about the reddit view

 

I have no interest in reading reddit posts!

 

yep,I understand where you are coming from in terms of reddit

so my general questions would then be :

When we sell (WRITE) call/put options on shares :
Is CGT event D2 happens when a taxpayer grants an option ?

afterward When we close (BUYBACK) call/put options on shares :
does CGT event C2 happens when a taxpayer's ownership of an intangible CGT asset ends?

 

when you enter into an option contract you are granting a right to someone and this is a CGT event. If you when enter into another contract to end this right it is also a CGT event.

This is assuming it is on capital account.

 

makes sense, thanks Terry !

 

Generally granting a option is a CGT event (disposal) and the re-purchase a new asset.... a option..... However the CGT clock restarts fresh when the repurchase occurs. This is because the options are different CGT asets to the actual shares.

In nearly all put / call share options it means there is no CGT discount as you are merely loaning out your shares in exchange for a option and when you get them back you must wait a further 12mths to enjoy a CGT discount. Its wildly unpopular except for share traders where they have no expectations of long term holds. Also consider impact on interest deductibility. If borrowed funds were used to buy the original shares the deductions may even cease.

Each party must also trust the other will settle. Its why P&C options are rarely seen other then intra-broker between professionals. I used to have a share broker client who would do P & C deals with institutions for voting rights etc. His client would borrow shares for voting rights. The broker would act as the settling party so all things would pan out fine.

P & C options can also be used to trigger CGT withhout a buy-back concern under Part IVA. There is a catch I wont explain.

 

different to your question but which broker do you use for options trading of ASX stock? Thanks in advance.

 

thanks Paul for sharing your thoughts on this matter !

 

no worries, happy to help.
I will pm you

 

j4mesa,

I'm also interested in what you use for options trading – ASX and US stock, care to elaborate?

Thanks

 

Hi @Phineas,

i am using “interactive brokers” to trade both aussie & US options. In aussie options, their price are really cheap compared to westpac, nabtrade, commsec / cmcbrokers. otherwise all our options premium sold are eaten by those high commisions.

pros of using IB :
- very cheap pricing for commisions
- cheap interest rates if you choose margin account
- broad overseas market coverage

cons :
- harder to understand user interface in trading
- harder for end of Financial year reporting but once you understand it, it is easier on the following years

If you end up decided to use interactive brokers, feel free to sign up using my referral link below :
IBKR Referral Invitation

so that I am being transparent to you , there is benefit for the referral and referee :
Referral Member | Interactive Brokers LLC

 

I agree with this one, even hard to find ASX listed stock... ! the interface is killer and not sure why they can't make it simply for new user to understand.

i closed account within a week or so.

 

Thanks for the info @j4mesa.

I'll use your link @j4mesa if I sign up, will have a read at their site.

Can I ask what a typical transaction turn around time is?

eg. if you transfer AUD into your IB account 10AM Monday, how soon can you use it to buy and trade on the US market (in USD)


You too, @ASXGJ1. Interested to hear other experiences if anyone else does options trading

 

Hmmm, not loving IB's lack of CHESS sponsorship and the interface is definitely not user friendly.

I also had a look into Pearler, which currently doesn't offer US trading for company accounts (only individual and joint accounts). I spoke with their company and they are looking at expanding their US trading capability in 2022 – their partner is DriveWealth.com

Selfwealth doesn't do options but quite handy that you can have individual and company accounts set up under the same log in.

I plan to defer my desire to do options trading until some more transparent and user-friendly options become available in Australia. Stick to hodling....

 

have you tried stake? it is in BETA mode for ASX stock they are cheapest with CHESS sponsored shares... $3 per trade .... !!!

 

i use STAKE for US shares and found them to be very good

 

@ASXGJ1 and @Mike A: thanks for sharing your experiences.

Interesting that Stake, like Pearler, are partnered with drivewealth. The way I read Stake's Financial Services Guide, it doesn't offer CHESS sponsorship:
Financial Services Guide | Stake

Also interesting that Stake are partnered with Airwallex. Whilst not a broker per se, AW does offer management of multiple overseas accounts at competitive exchange rates, which means access to US-based trading platforms via an online US account.

This led me to look at US-based trading platforms. As far as options trading goes, IB is still ranked highly, so you seem to be onto at good thing @j4mesa! These are the sites that seem to come up the most:

• Tastyworks
• Tradier
• Interactive Brokers
• eOption
• E*TRADE

I think E*TRADE has the most user-friendly interface and transparent pricing schedule:
E*TRADE Fees and Rates | Pricing for Investing & Trading | E*TRADE

I presume a US Airwallex account is subject to US tax... anyone with knowledge in this area?

 

You may have some misunderstanding, Stake is CHESS SPONSORED for ASX. I got my HIN number and all my ASX stocks are registered as CHESS SPONSORED.

For, US stocks no one in the world offers CHESS sponsorship... As CHESS is limited to ASX listed stock only.

I am trading free on stake until December 2021 and then it will be $3 per trade.