# Tax Implications for options trading



## Afterdark (3 Jan 2006)

Anyone know if CGT is also used for calculating gains and losses when dealing with trading in options. Some broker sites provide this facility aswell as trading in shares.

Example if you bought 10 contracts in a stock that expires say jan 2007 (1 year from now) at an agreed price of €20 for example. If that stock is trading at €30 at that time when you exercise your options you get €10 for each share contract. Each contract being 100 shares. You have basically bought the right to buy 1000 shares (10x100) at €20. Since they are trading at €30 you can sell them then at €10 profit per share so that's €10,000 profit.

Is that 10,000 then taxed at CGT 20%.


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## Glenbhoy (3 Jan 2006)

AFAIK this is a normal taxable gain, with CGT payable when the profit is realised.


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## Afterdark (3 Jan 2006)

Thanks GlenBohy. There didn't seem to be any info or examples in the CGT leaflets or forms but it seemed reasonable it was the same. I've sent them an email aswell just to confirm.

I found some strange info in this form to do with share options and income tax 

[broken link removed] income tax and RTSO.


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## ClubMan (3 Jan 2006)

The _RTSO1 _form relates specifically to employee stock option schemes. Don't confuse employee stock options with the  that you're talking about above!


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## demoivre (4 Jan 2006)

Glenbhoy said:
			
		

> AFAIK this is a normal taxable gain, with CGT payable when the profit is realised.



 I agree it would be  a capital gain in this instance because it is a once off option. However if the op decides to trade options  on a regular basis it may well be a different story - I see it as a grey area as to whether income from financial markets is classed as investment income ( cgt implications ) as opposed to income from trading on financial markets ( income tax implications ) . I would be very interested to hear  revenues reply to the op's e-mail.


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## Afterdark (4 Jan 2006)

I'm actually curious aswell to know how they clasify someone for income tax instead of cgt going on there trading patterns. Still waiting on the reply but if I don't hear back from them i'll be dropping in to find out.

Unless someone already is doing this and knows the answer already.


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## markowitzman (4 Jan 2006)

I would say they will charge income tax as you are trading.
Mavbe if you were purchasing options to cover existing long term share holds you would be ok for cgt but for naked options would have my doubts.


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## Glenbhoy (4 Jan 2006)

> 27Mar-0412The company will serve as the primary group entity that enters into third party foreign exchange and other derivative transactions for the groupCase 1 confirmedCase 1 confirmed on the basis of the level of activities involved and that the employees and company management involved possess the appropriate level of skills, expertise and authority necessary.


 
Found this on revenue.ie - basically this is part of a list of queries to the revenue defining whether or not an activity is a trade or not.  In this instance, it sems that the key was the level of transactions and the expertise of the personnel involved.


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## demoivre (4 Jan 2006)

markowitzman said:
			
		

> I would say they will charge income tax as you are trading.
> Mavbe if you were purchasing options to cover existing long term share holds you would be ok for cgt but for naked options would have my doubts.



Can't see why the option being covered / naked would make any difference re tax implications. The frequency of ones trades / amount of money made are more relevant issues imo.


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## markowitzman (4 Jan 2006)

demoivre you could well be correct. I think LEAPS might be the only options investment that might escape the trading rule re tax. Not sure though. Their long expiration might be of help?


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## demoivre (5 Jan 2006)

markowitzman said:
			
		

> demoivre you could well be correct. I think LEAPS might be the only options investment that might escape the trading rule re tax. Not sure though. Their long expiration might be of help?



I see where you are coming from marko but American style LEAPS can still be exercised at any stage before expiration. Likewise there is nothing to stop someone buying, say, a Dec call and holding on to it until  expiration ie hold on to it like a share and then sell and make a capital gain. Like I said before I think this whole area of income from markets is not a black and white issue - I still think the taxation issues ( ie whether cgt or income tax is applicable ) depends on the frequency of trading and monies generated.


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## xt40 (24 Nov 2006)

i know this is an old thread but was wondering if anyone knows if there is a point where income derived from share trading becomes liable to income tax.

eg if someone buys and sells a specific share every day for a year to maximise  return from market fluctuations and say in the process makes a lot more money than they get from their day job, how is it treated. cgt on the proceeds of the individual buy/sell trades or income tax.

the whole area seems very grey and revenue dont seem to be aware of anything other than employee sharee options.


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## DirtyH2O (24 Nov 2006)

I'd presume that www.deltaindex.com know what they are talking about as they really sell the tax free angle.


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## bazermc (24 Nov 2006)

Yeah because it is just betting not trading so therefore no tax

However i suspect it will not be long before this is changed


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## Domo (24 Nov 2006)

DirtyH2O said:


> I'd presume that www.deltaindex.com know what they are talking about as they really sell the tax free angle.


 
This is betting on movement in share indeces, and not purchasing and selling shares - therefore it falls under the betting rules for tax and not trading.

However, trading in shares is a separate matter, and this is a very grey area for tax.  Where do you draw the line between occasions transactions - CGT and trading - Income Tax.  I believe that the Revenue look at each case on an individual basis, and it is very hard to define when a "hobby" becomes a "trade".  Even accountants and tax advisors will have a problem advising on this.


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## xt40 (24 Nov 2006)

the americans seem to have the whole area better thought out.
buy and hold for a year (i think) = cgt. any shorter time = income tax.
they also have ira individual retirement accounts which are kinda like a self administered pension in that you can trade tax free as long as you leave the money in the account until retirement. much simpler than the red tape and fee infested mess we have here.


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## xt40 (24 Nov 2006)

using the delta index example, could options trading such as buying or selling calls be considered as betting. taxation aside not many stock market experts would argue that it is anything but betting.


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## Domo (25 Nov 2006)

Buying and selling calls are still purchases and disposals and subject to CGT (unless trading and subject to income tax).


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