Reporting Options Trades on Tax Return

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Since binary options have yet to be regulated in Canadait causes much confusion when tax season rolls around as many traders are not sure whether or not they must declare profits earned during the year. Many income tax referral sites offer information on how to declare earnings from investment sources, but very few rarely mention binary options as a part of the whole package.

The information below should provide some clarity about what is expected of you when filing your tax return. As per Canadian law, all citizens are legally obliged to file an income tax return, regardless of income level and way of obtaining the money. Binary options brokers do not withhold any taxes from your profits; therefore, you are responsible for declaring all profits on your tax return, in order for the government to retain its share.

For income tax purposes, all earnings from trading binary options are taxed as capital gains. In addition, you must report all positions that ended in the year for which you are filing taxes. This means that if you enter a position at the end of December and it ends binary options canada tax deadline 2017 the beginning of January of the following year, you would retain that information to include it on your next tax return.

The best way to avoid confusion when tracking your losses and profits is to set up a system, whether it is via a spreadsheet or by printing your account statements and filing them accordingly, whereby you keep tabs on all of your trading activities. This way, when the time comes to file your tax return, you will have a much easier time providing the required information.

Many Canadian traders tend to forgot about or are simply unaware of the fact that you can claim all your expenses related to binary options canada tax deadline 2017 trading activities. This requires some organizational skills as well but the savings you can incur as a results are well worth the additional work. If you wish to claim some expenses as deductions, you must retain the original receipts for all purchases, regardless of whether it is an internet connection, a computer, educational materials, and more.

The Canada Revenue Agency is much more likely to accept your claims if you can support them with factual documents. If you trade binary options for pleasure and your financial documents are in order, you could very well file on your own, via a web application or tax software. However, for complex accounts and for those who trade binary options canada tax deadline 2017 a regular basis, you may benefit from speaking with an accountant.

Although there are fees associated with this service, a professional has the binary options canada tax deadline 2017 required to optimize your tax return. Taxes are intimidating but by staying organized, and deferring to a professional when in need, you can breeze through the process.

This way, you can focus on your binary options activities and worry less about tax season. This website is out of date, do not rely on it for current information about binary options. What the Law States As per Canadian law, all citizens are legally obliged to file an income tax return, regardless of income level and way of obtaining the money. Keep Track The best way to avoid confusion when tracking your losses and profits binary options canada tax deadline 2017 to set up a system, whether it is via a spreadsheet or by printing your account statements and filing them accordingly, whereby you keep tabs binary options canada tax deadline 2017 all of your trading activities.

Maximize Deductions Many Canadian traders tend to forgot about or are simply unaware of the fact that you can claim all your expenses related to your trading activities. Ways to File If you trade binary options for pleasure and your financial documents are in order, you could very well file on your own, via a web application or tax software.

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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: