# Taxation on Options



## Worm (Nov 18, 2012)

I think I have a handle on how options are taxed, except this one specific situation. Was hoping someone could help me out (I realize internet help isn't deemed professional tax advise).

What happens if an option spans 2 taxation years, eg sell a call in 2013, with expiry in 2014. You collect a premium in 2013, if the call is exercised in 2014 how do you handle the transaction? Normally on exercise I believe you would include the premium in the proceeds the call and claim it as a capital gain (lets assume we have a gain and not a loss here). I'm just not clear on how this works if not in the same calendar year. Thanks.


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## andrewf (Mar 1, 2010)

Taxtips.ca is a good resource. Here is their page on options taxation:

http://www.taxtips.ca/personaltax/investing/taxtreatment/options.htm

And here's what they say about your particular scenario:



> As you can see in the table, when call and put options sold are being recorded as capital gains, the gain is recorded in the taxation year in which the options are sold. However,* if the options are then exercised in the next taxation year, the capital gain from the previous year must be reversed, and either added to the proceeds from the sale of shares (call option), or deducted from the cost basis of shares purchased (put option). 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.
> *
> Usually, the taxpayer would benefit from filing the T1Adj. However, if the amount is not significant, and if a tax preparer is being paid to do the taxes, there may be little benefit to 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.


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