Trading options in Australia

[sanjiSez]

Thank you sharkman, You have summed it up nicely, I definitely have to get into the habit of entering details as I put in a trade.

In my case I do only a handful number of trades a year. When I passed it onto my accountant I realised they were not confident in determining the capital gains tax event. I tried to look into the ATO website, things are not clear for me despite reading it several times.

Mine is usually a simple tax return with a couple of investments and a very small online business, personally do all the leg work and pass it on to my tax agent and lodge the tax returns through them more like a four eye check. I am not a total stranger to ato website. But anyway, the above event got me spooked.

 

[Sharkman]

Yeah didn't quote your post as a go at you my friend, just for continuity of conversation.

The overarching point as has been excellently made by you, is effective record keeping, but also tax considerations, which I hope I have got people thinking about.

all good mate, and completely agree, your real PNL is not what you make on the market, but what's left after the tax office has dipped their grubby paws into your coin jar.

In my case I do only a handful number of trades a year. When I passed it onto my accountant I realised they were not confident in determining the capital gains tax event. I tried to look into the ATO website, things are not clear for me despite reading it several times.

Mine is usually a simple tax return with a couple of investments and a very small online business, personally do all the leg work and pass it on to my tax agent and lodge the tax returns through them more like a four eye check. I am not a total stranger to ato website. But anyway, the above event got me spooked.

therein lies the main beef i have with how things work. you might be paying your accountants thousands of $, but the responsibility of ensuring that the submitted numbers are correct still lies with YOU. that's why i work everything out myself and check my numbers against theirs, just to make sure. which sucks really, you're already paying bucks aplenty for their expertise, but you still kinda have to know the rules and crunch the numbers yourself anyway, since you bear full responsibility for whatever figures are submitted on your behalf.

 

[sanjiSez]

Moderators if you think this is inappropriate or not at the right place please delete it or feel free to move this post where it belongs..
I am posting it only for educational purpose for me to have a better understanding, as I said before I'll be running this through an accountant and wont be treating as financial advise.

ticker code "x" that it is a hypothetical one.

The below is a simple trade. In my case (as a speculator/Investor/Tax resident all year) ,Could I please ask If My Understanding is correct:

1) Because a "contract" is involved in obtaining the asset , I declare the premium received as capital gain event in 2020/2021 FY?
2) Since No contract involved in disposing the asset and If I subtract the above declared CG event my sell price is lower than my buy price ,will that be capital loss for 2021/2022 FY?

Date Trade Executed

Option

Type

Ticker

Strike

Expiry Date

Contracts

Premium

Proceeds in AUD

Proceeds in Base (Au)

Comm

Fee

Notes

Open on 30/06/2021

19/3/2021

Sell

Put

X

$24.50

15/4/2021

4

$0.85

$340.00

$340.00

$1.00

$0.10

Assigned. Sold the stock on 08/07/2021

Y

11/5/2021

Sell

Put

X

$22.50

20/5/2021

3

$0.20

$60.00

$60.00

$1.10

$0.00

Assigned. Sold the stock on 08/07/2021

Y

8/7/2021

Sell

X

$23.70

7

$16,590.00

$16,590.00

$14.60

Closing trade. (700 shares)

NA

 

[wayneL]

@Gunnerguy may be the best qualified here to answer this/ask the right questions?

 

[KevinBB]

@sanjiSez there is one definitive document on the tax treatement of ETOs in Australia. It is available on the ASX web site, it is a PDF document written by Deloitte in 2011, follow this link to get it.

The tax treatment will vary depending on whether you are a trader, speculator, hedger or investor. If you can't work out which category you fall in, or if you can't understand the tax treatment described in the document linked above, you should seek advice from your professional tax advisor. Its the safest way.

KH

 

[Sharkman]

Moderators if you think this is inappropriate or not at the right place please delete it or feel free to move this post where it belongs..
I am posting it only for educational purpose for me to have a better understanding, as I said before I'll be running this through an accountant and wont be treating as financial advise.

ticker code "x" that it is a hypothetical one.

The below is a simple trade. In my case (as a speculator/Investor/Tax resident all year) ,Could I please ask If My Understanding is correct:

1) Because a "contract" is involved in obtaining the asset , I declare the premium received as capital gain event in 2020/2021 FY?
2) Since No contract involved in disposing the asset and If I subtract the above declared CG event my sell price is lower than my buy price ,will that be capital loss for 2021/2022 FY?

Date Trade Executed

Option

Type

Ticker

Strike

Expiry Date

Contracts

Premium

Proceeds in AUD

Proceeds in Base (Au)

Comm

Fee

Notes

Open on 30/06/2021

19/3/2021

Sell

Put

X

$24.50

15/4/2021

4

$0.85

$340.00

$340.00

$1.00

$0.10

Assigned. Sold the stock on 08/07/2021

Y

11/5/2021

Sell

Put

X

$22.50

20/5/2021

3

$0.20

$60.00

$60.00

$1.10

$0.00

Assigned. Sold the stock on 08/07/2021

Y

8/7/2021

Sell

X

$23.70

7

$16,590.00

$16,590.00

$14.60

Closing trade. (700 shares)

NA

my understanding is the following. i have used 3 different accounting firms over the years, all 3 interpreted it the same way, and i have never been queried by the ATO in some 14 odd years of options trading, so i assume this is correct. however you should speak to your own accountant (as you're already planning to do) in case your situation is different to mine (i trade thru a corporate trust).

• sold mar puts are booked as $340 of regular income not cap gains ie. cannot be offset by cap losses
• the $1.00 brokerage is booked as an expense ie. can be used as a deduction against any income type, and the 10c is claimed as a GST refund (as my corporate trust just trades, it doesn't provide any goods or services on which it charges GST)
• on assignment the 400 units of stock put to you are treated as having a cost base of $9,800
• any assignment fee (IB charges 27.5c + GST per contract, which you haven't mentioned) is also booked as an expense
• similarly the sold may puts are booked as $60 of regular income, $1.00 as an expense and 10c claimed as GST refund
• on assignment the 300 units of stock put to you are treated as having a cost base of $6,750, another set of assignment fees booked as an expense + GST refund
• on selling the stock in jul the total cost base from above ($16,550) is subtracted from the net proceeds ($16,576.73 - non-GST component of brokerage is $13.27) so there will be $26.73 of undiscounted cap gains to declare + 1.33 GST refund

so if i had made the above trades i would book it as:

FY2021:

• $400 of regular (non-primary production in the case of a trust) income
• $3.93 expenses (2 lots of $1 options brokerage + $1.93 in assignment fees)
• $0.39 claimed as a GST refund (10c + 10c + 19c from the assignment fees)
• open stock position for 700 units with a cost base of $16,550

FY2022:

• $26.73 cap gains
• $1.33 claimed as a GST refund

 

[sanjiSez]

Thanks @wayneL :Much Appreciated.

Hi Kevin, I have been through that document and I am not sure if that is something Currently accepted, Even then I am not sure if gives me a convincing answer.
Thanks to the Individual that Someone has already asked this question in a much better way than I could ever imagine asking :
Courtesy : ATO Community : https://community.ato.gov.au/s/question/a0J9s0000003082EAA/p00172893

 

[sanjiSez]

my understanding is the following. i have used 3 different accounting firms over the years, all 3 interpreted it the same way, and i have never been queried by the ATO in some 14 odd years of options trading, so i assume this is correct. however you should speak to your own accountant (as you're already planning to do) in case your situation is different to mine (i trade thru a corporate trust).

• sold mar puts are booked as $340 of regular income not cap gains ie. cannot be offset by cap losses
• the $1.00 brokerage is booked as an expense ie. can be used as a deduction against any income type, and the 10c is claimed as a GST refund (as my corporate trust just trades, it doesn't provide any goods or services on which it charges GST)
• on assignment the 400 units of stock put to you are treated as having a cost base of $9,800
• any assignment fee (IB charges 27.5c + GST per contract, which you haven't mentioned) is also booked as an expense
• similarly the sold may puts are booked as $60 of regular income, $1.00 as an expense and 10c claimed as GST refund
• on assignment the 300 units of stock put to you are treated as having a cost base of $6,750, another set of assignment fees booked as an expense + GST refund
• on selling the stock in jul the total cost base from above ($16,550) is subtracted from the net proceeds ($16,576.73 - non-GST component of brokerage is $13.27) so there will be $26.73 of undiscounted cap gains to declare + 1.33 GST refund

so if i had made the above trades i would book it as:

FY2021:

• $400 of regular (non-primary production in the case of a trust) income
• $3.93 expenses (2 lots of $1 options brokerage + $1.93 in assignment fees)
• $0.39 claimed as a GST refund (10c + 10c + 19c from the assignment fees)
• open stock position for 700 units with a cost base of $16,550

FY2022:

• $26.73 cap gains
• $1.33 claimed as a GST refund

@Sharkman : As far as i Understand what you said is right But The Inconvenience of going back to amending the previous year tax returns when I have to Buy to close the trade is what is bothering me.
Also, As I am not a trader for tax purposes I think that makes a different and what you stated as income in your case, for it is a capital gain tax event (D2) and When I buy to close next FY I have to record it as (C2) event.

 

[sanjiSez]

I should have Given an Example. Can I please ask how would you sum this one as

Date Trade Executed

Option

Type

Ticker

Strike

Expiry Date

Contracts

Premium

Proceeds in AUD

Proceeds in Base (Au)

Comm

Fee

Notes

29/6/2021

Sell

Put

X

$21.50

15/7/2021

4

$0.25

$100.00

$100.00

$1.10

$0.00

Buy @ .065 +Comm on 02/07/2021

2/7/2021

Buy

Put

X

$21.50

15/7/2021

4

-$0.07

-$26.00

-$26.00

$1.10

$0.00

Closing trade.

 

[Gunnerguy]

@Gunnerguy may be the best qualified here to answer this/ask the right questions?

!!! Shoot really ???
I’m lurking here to find the answer myself lol.
Ask me any tax question but not on options ..... or novated leases ....
Gunnerguy.

 

[Sharkman]

@Sharkman : As far as i Understand what you said is right But The Inconvenience of going back to amending the previous year tax returns when I have to Buy to close the trade is what is bothering me.
Also, As I am not a trader for tax purposes I think that makes a different and what you stated as income in your case, for it is a capital gain tax event (D2) and When I buy to close next FY I have to record it as (C2) event.

I should have Given an Example. Can I please ask how would you sum this one as

Date Trade Executed

Option

Type

Ticker

Strike

Expiry Date

Contracts

Premium

Proceeds in AUD

Proceeds in Base (Au)

Comm

Fee

Notes

29/6/2021

Sell

Put

X

$21.50

15/7/2021

4

$0.25

$100.00

$100.00

$1.10

$0.00

Buy @ .065 +Comm on 02/07/2021

2/7/2021

Buy

Put

X

$21.50

15/7/2021

4

-$0.07

-$26.00

-$26.00

$1.10

$0.00

Closing trade.

in that scenario i'd book $100 of non-primary production income in FY2021 (+ claim a $1 expense and a 10c GST refund) and $26 of negative NPP in FY2022 (+ claim a $1 expense and a 10c GST refund). i've been in such a situation plenty of times and that is indeed what my accountants have done every time. there is no need to amend the previous year's tax returns.

as per the document quoted by KevinBB:

Takers (pg 10)

A trader who buys an option will generally be able to claim a tax deduction at the time when the premium becomes due and payable. If the option lapses, there will be no further tax impact.

Writers (pg 12)

The premium received is likely to be assessable income to the writer on a due and receivable basis. This will almost always be the same as a cash basis because premiums are usually paid simultaneously with the grant of an option.

however as noted above i don't trade options as myself, i've only ever traded them thru a trust with a company trustee. if you're trading them as a different sort of entity you'll need to check with your accountant how they should be handled in that case.