[solarflashlight]

Hi guys, great board, I'm a relatively new investor still in university, learning the ropes and I would appreciate any help in this matter.

I'm a Canadian Citizen

I currently own a good number of US stock options of a particular US company called huntsman corp (NYSE:HUN). namely 1000 Aug5 calls, 900 Aug10 calls and 800 June10 calls in a personal online investment account.

I was wondering about what the tax treatment is for profits from a US stock option, is it still treated as capital gain at 50% taxable, or is it something else? I would like to know because I'm trying to figure out whether I should sell them before expiry, or exercise them (does exercising a stock option the same as selling them in tax terms).

on a related matter, is it different for Canadian stock options?

Thank you so much for any response.

 

[Robillard]

I could be mistaken, but I think the gains from options trading are treated as capital gains. They do not generate dividend or interest income, so that really only leaves one option. Refer to the CRA's guide T4037 for more information. I don't think it matters whether you exercise the option and sell the underlying securities, or simply sell the options. I'm not sure if US options are treated any differently than Canadian options.

 

[FrugalTrader]

I could be mistaken, but I think the gains from options trading are treated as capital gains. They do not generate dividend or interest income, so that really only leaves one option. Refer to the CRA's guide T4037 for more information. I don't think it matters whether you exercise the option and sell the underlying securities, or simply sell the options. I'm not sure if US options are treated any differently than Canadian options.

An accountant once told me that trading options are considered capital gains/loss as well.

 

[leslie]

This jpg was published by the Globe and was created by Cesnick. Squint hard. There is no difference between the treatment of US vs Cdn options.
http://members.shaw.ca/retailinvestor/TaxOptions.jpg

 

[cardhu]

Equity options are treated the same as the underlying securities
... if you’d treat the share profits as capital gains, then the option premiums would also be capital gains.
... if you’d treat the share profits as income, then the option premiums would also be income.
In other words, for your average individual investor, they are capital gains/losses.

The only difference made by exercising or not is the timing of the gain ... when a call option is exercised, the premium paid for the option contract is rolled into the adjusted cost base of the shares purchased, so any gain or loss would be deferred until the shares themselves are sold ... if the call option is sold, then any gain/loss is realized immediately, as of the date of the sale.