Why options need their own ACB treatment
An option’s premium is not a share purchase, and writing an option is not a share sale. For activity on capital account, Income Tax Act section 49 generally treats granting an option as a disposition when it is written. A later closing trade, exercise, assignment, or expiry can produce another tax event or change how the original premium is ultimately reported.
The capital-or-income classification comes first. CRA’s archived Interpretation Bulletin IT-479R discusses that factual determination and the treatment of exchange-traded calls and puts. The examples here assume capital-account treatment; employee stock options and options held or written as part of a trading business require different analysis.
Supported option transaction types
myCostBase records the following single-leg equity and ETF option events:
Long options
- Buy to open
- Sell to close
- Exercise a long call — acquire the underlying shares
- Exercise a long put — dispose of the underlying shares
- Expiry — dispose of the option for nil proceeds
Written options
- Write to open
- Buy to close
- Expiry
- Assignment on a written call — dispose of the underlying shares
- Assignment on a written put — acquire the underlying shares
How written-option premium is recorded
myCostBase records the premium, commission, grant date, and open obligation for each supported written-option series. The position remains operationally open until it is repurchased, exercised, assigned, or expires, but that open status is not a tax deferral.
For an option on capital account, subsection 49(1) generally creates a capital gain equal to the net premium in the year it is granted. If an offsetting option is bought later, CRA’s IT-479R describes its acquisition cost as a capital loss at that time. When grant and close occur in different years, the gain and loss cannot simply be netted into the closing year.
Exercise, assignment, and expiry
- Long call exercised: the option’s ACB is added to the cost of the shares acquired at the strike price.
- Long put exercised: the option’s ACB is deducted when calculating the proceeds from disposing of the underlying shares.
- Written call assigned: when the option and shares are on capital account, the premium is included in the proceeds from disposing of the underlying shares under subsection 49(3).
- Written put assigned: when the option and shares are on capital account, the premium reduces the cost of the underlying shares under subsection 49(3.1).
- Long option expires: the remaining option ACB generally becomes a capital loss at expiry.
- Written option expires: the grant-year capital gain remains; expiry does not create the same gain again or move it into a later year.
Closing a position before exercise or expiry
- Selling to close a long option: calculate a gain or loss using the proceeds, eligible disposition costs, and the option’s ACB.
- Buying to close a written option: the original net premium is generally a capital gain when granted, and the cost of the offsetting option is generally a capital loss when acquired.
When writing and closing occur in the same year, the net arithmetic may look like a single gain or loss. Preserve both dates and amounts because a cross-year close assigns them to different taxation years.
Exercise or assignment in a later year
If a written call or put is exercised after the grant-year return was filed, subsections 49(3) and 49(3.1) move the premium into the underlying share transaction. Subsection 49(4) provides an amended-return mechanism to remove the original gain from the grant year when its conditions and deadline are met. Keep the original grant, resolution record, and amendment calculation together.
Contract multiplier
Each option security has a contract multiplier—the number of underlying shares one contract controls. It defaults to 100 for standard listed equity and ETF options and can be edited for non-standard or adjusted contracts. Confirm the contract terms after a split, merger, or other corporate action.
Multi-leg positions
Individual legs of spreads, straddles, collars, and other multi-leg positions can be recorded and calculated separately when they use supported option transaction types. myCostBase does not currently group or link those legs into a named strategy or provide strategy-level matching, lifecycle management, or premium allocation.
Frequently asked questions
How are stock options taxed in Canada for capital gains purposes?
For activity on capital account, a purchased option has its own adjusted cost base, while section 49 generally treats a written option’s net premium as a capital gain when the option is granted. Exercise can move the premium into the cost or proceeds of the underlying shares, and a later-year exercise may require an amendment to the grant-year return.
What happens to the premium when I exercise a call option?
The premium you paid is added to the adjusted cost base of the shares you acquire at the strike price — it is not a separate gain or loss. The combined cost (strike price plus premium) becomes your ACB for those shares going forward.
What happens if my option expires worthless?
A long option that expires generally produces a capital loss equal to its remaining adjusted cost base. For a written option on capital account, the premium was generally a capital gain when the option was granted, so expiry does not create the same gain again or move it into the expiry year.
What if a written option remains open at year-end?
For an option on capital account, the net premium is generally a capital gain in the year the option was granted even if it remains open on December 31. A ledger can retain the open position for operational tracking, but that status does not defer the grant-year tax result.
Does myCostBase support multi-leg option strategies like spreads and straddles?
Individual legs of spreads, straddles, collars, and other multi-leg positions can be recorded and calculated separately when they use supported option transaction types. myCostBase does not currently group or link those legs into a named strategy or provide strategy-level matching, lifecycle management, or premium allocation.
Where to go next
For the full tax examples, read Adjusted Cost Base for Options Trading in Canada. For setup decisions that affect which accounts belong in an ACB pool, see Pooled ACB Across Brokerages. For year-end reporting, continue to T5008 Reconciliation and Reports.