How the CRA classifies options
There is no universal “options are capital gains” rule. The CRA’s published position treats the characterization as a question of fact. A holder’s treatment generally follows the underlying shares; a covered writer generally follows the shares held; and gains or losses from writing naked options are normally on income account, although consistent capital reporting may be accepted in some circumstances.
There are four possible outcomes for an option contract:
| Outcome | Tax event |
|---|---|
| Close (buy/sell to close) | Capital gain or loss on the option itself |
| Expire worthless | Capital loss for the buyer; full premium is a gain for the seller |
| Exercise | No immediate gain/loss — premium adjusts ACB/proceeds of shares |
| Assignment | No immediate gain/loss on the option — premium adjusts share proceeds/ACB |
Options tax quick-reference table
For a standard equity option on capital account, start with the position and its final lifecycle event:
| Position and outcome | Canadian tax result |
|---|---|
| Long option sold to close | Option proceeds minus premium and outlays |
| Long option expires | Capital loss; proceeds are $0 |
| Long call exercised | Premium and exercise cost enter the acquired shares’ ACB |
| Long put exercised | Premium reduces proceeds from the delivered shares |
| Written option expires | Grant-date option result remains |
| Written option bought to close | Grant and closing acquisition are tracked in their respective years |
| Written call assigned | Premium increases proceeds from the delivered shares |
| Written put assigned | Premium reduces the acquired shares’ ACB |
Adjusted contracts, cash-settled derivatives and multi-leg strategies require contract-level evidence; do not infer a standard 100-share deliverable when the broker record says otherwise.
Buying calls
When you buy a call option, you pay a premium. Your ACB for the option is the premium + commissions.
If you sell to close
This is a straightforward disposition. Capital gain = sale proceeds − ACB of the option (premium paid + commission).
If the call expires worthless
You have a capital loss equal to the premium paid + commission. Proceeds are $0. Report on Schedule 3 in the year it expires.
If you exercise the call
No gain or loss on the option itself. Instead, the premium you paid is added to the ACB of the shares you acquire:
ACB of shares = Strike price × shares + Premium paid + Commissions
The option disappears from your records and its cost becomes part of your share position.
Buying puts
When you buy a put option, the tax rules mirror calls:
If you sell to close
Capital gain or loss = proceeds − premium paid.
If the put expires worthless
Capital loss equal to the premium paid + commission.
If you exercise the put (sell shares at the strike price)
No gain or loss on the option. The premium paid reduces the proceeds of disposition of the shares you sell:
Adjusted proceeds = (Strike price × shares) − Premium paid − Commissions
In effect, the put premium becomes part of your selling cost.
Writing (selling) calls
When you write a call option on capital account, the premium is proceeds of disposition when the option is granted. If it is later exercised, section 49 replaces that standalone option result with an adjustment to the underlying-share transaction.
If the call expires worthless
No replacement share transaction occurs. The grant-date capital gain (premium less applicable outlays) remains reported in the year the option was written.
If you buy to close
The grant and the option acquired to close are separate capital-property events. Their net economics are premium received minus closing cost, but the amounts may belong to different tax years.
If the call is assigned (you deliver shares)
No separate gain/loss on the option. The premium received is added to your proceeds of disposition for the shares:
Adjusted proceeds = (Strike price × shares) + Premium received − Commissions
Your capital gain on the shares = Adjusted proceeds − ACB of the shares delivered. If the option was written in an earlier year, that earlier grant-date result must be reversed by amendment.
Covered calls: the full picture
A covered call means writing a call on shares you already own. It’s popular for income generation, but the tax treatment confuses many investors.
Key rules
- Characterization comes first. The rules below assume the covered call is reported on capital account; do not apply them to a business-income position without review.
- When written: On capital account, the premium is proceeds in the grant year.
- If the call expires: The grant-date gain remains; expiry does not move it to a later year.
- If you buy to close: Track the grant and closing acquisition/loss separately, especially across tax years.
- If assigned: Premium adds to your share sale proceeds. You calculate the share gain as: (strike × shares + premium) − ACB of shares.
Example: Covered call assigned
| Item | Amount |
|---|---|
| Shares: 100 RY, ACB = $12,500 | |
| Write 1 call, strike $140, premium $3.00 | $300 received |
| Call is assigned: deliver 100 shares at $140 | |
| Proceeds = (100 × $140) + $300 = $14,300 | |
| Capital gain = $14,300 − $12,500 = $1,800 |
Writing (selling) puts
When you write a put option, you receive a premium and take on the obligation to buy shares if assigned.
If the put expires worthless
The grant-date capital gain remains (proceeds = premium, less applicable outlays).
If you buy to close
The grant-date disposition and closing acquisition/loss are tracked separately; their combined economics are premium received minus cost to close.
If the put is assigned (you buy shares)
No gain or loss on the option. The premium received reduces the ACB of the shares you acquire:
ACB of shares = (Strike price × shares) − Premium received + Commissions
The premium effectively lowers your cost base for the shares.
Rolling an option is two tax events
A “roll” is broker shorthand, not a separate tax rule. It normally contains a closing trade on the old contract and an opening trade on a new contract, often with different strike prices or expiries. Track both legs even when the broker displays one net debit or credit.
The old contract’s close belongs to its transaction date and tax year. The new written contract creates grant-date proceeds on capital account; a new long contract creates a new option ACB. If the CSV supplies only a net amount without both contract identities, the record is not sufficient to calculate a defensible result.
Reporting on Schedule 3
For the 2025 Schedule 3, capital-account option dispositions go on line 6, “Bonds, debentures, promissory notes, and other similar properties”; CRA expressly includes options in that category. Report:
- Description: "Call option — RY Jan 2026 $140" or similar identifying detail
- Proceeds: Premium received (if writer) or sale price (if closing a long position)
- ACB: Premium paid (if buyer) or $0 (if writer and the option expires)
- Outlays: Commissions
For exercise and assignment, the option does NOT appear as a separate Schedule 3 line — its value is folded into the share disposition or acquisition.
USD-denominated options
US-listed options (SPY, AAPL, etc.) must be converted to CAD using the Bank of Canada rate on the applicable transaction date — separately for the premium received/paid and for any share proceeds on assignment.
Records to keep for options trades
A T5008 or annual statement may not connect the full lifecycle. Keep enough evidence to reproduce every result:
- underlying symbol, put/call, strike, expiry and contract multiplier;
- whether each trade opened or closed a long or written position;
- trade date, quantity, premium, commissions, currency and the CAD exchange-rate source;
- expiry, exercise, assignment or cash-settlement confirmation;
- the underlying shares delivered or acquired, including their pooled ACB; and
- the reviewed capital-versus-income treatment and any prior-year amendment.
If a broker row says only “BUY” or “SELL,” that is not enough to prove whether the trade opened or closed the position. Resolve it against statements or confirmations rather than guessing.
Common mistakes
- Deferring a writer premium until expiry: On capital account, a grant is a disposition when written. Expiry leaves that result in place; it does not move it to the expiry year.
- Missing a prior-year amendment: Later exercise or assignment can replace a writer gain reported in an earlier year with the underlying-share treatment.
- Double-counting on assignment: If a covered call is assigned, do not report the option gain separately AND include the premium in share proceeds — it’s one or the other (always the share approach on assignment).
- Missing expired options: A holder’s worthless expiry produces a capital loss. For a capital-account writer, expiry leaves the grant-date gain in place. T5008 slips rarely capture the full lifecycle.
- Ignoring the contract multiplier: One equity option contract = 100 shares. A $3.00 premium means $300 total, not $3.00.
- FX on US options: Every premium and every assignment must be converted to CAD at the relevant BoC rate. Your broker’s USD figures are not filing-ready.
Primary sources
- Income Tax Act, section 49 — granted options, exercise and assignment.
- CRA IT-479R, Transactions in Securities — CRA’s archived interpretive position on holders, covered writers and naked options.
- CRA: Completing Schedule 3 — current property categories and filing instructions.
Archived CRA interpretation bulletins are not law, but they remain useful evidence of the Agency’s published administrative position. Section 49 of the current Act is the controlling statutory source for the grant, exercise and assignment mechanics described here.