Trading US options as an Australian resident carries specific tax implications, influenced by factors such as the nature of the trading activity, the type of option, and the holding period. Traders and investors should know what these implications are and what the requirements are for the Australian Taxation Office (ATO) before trading options. This is general information and should not be taken as tax advice. We always recommend checking with a financial professional or the ATO if you are unsure of anything.
Here's a general overview of the tax implications that Australian investors should be aware of:
Investor vs trader classification:
Investor: If you trade options as a form of investment, you're considered an investor. Profits from selling options are subject to Capital Gains Tax (CGT). If you've held the option for at least 12 months, you may be eligible for a 50% CGT discount.
Trader: If you engage in options trading as a business, you're classified as a trader. In this case, profits are treated as ordinary income and taxed at your marginal tax rate. Losses and costs incurred are deductible expenses in the year they're incurred.
For more information on classifications and how they are taxed, the ATO is a good starting point.
Tax treatment based on option type:
Call options:
Holder (Buyer): If you buy a call option and later sell it, any profit is subject to CGT. If the option expires, it's considered disposed of at expiry for nil proceeds. Upon exercising the call option, the cost base of the acquired shares includes both the premium paid and the exercise price.
Writer (Seller): The premium received upon writing a call option is an immediate capital gain. If the option is exercised, the proceeds from the share sale include both the exercise price and the premium received.
Put options:
Holder (Buyer): If you buy a put option and later sell it, any profit is subject to CGT. If the option expires, it's considered disposed of at expiry for nil proceeds. Upon exercising the put option, the proceeds from the share sale are the exercise price received minus the premium paid.
Writer (Seller): The premium received upon writing a put option is an immediate capital gain. If the option is exercised, the cost base for the shares acquired is the exercise price paid minus the premium received.
More information on tax on options types can be found on the ATO's website.
US withholding tax:
While the US imposes withholding tax on dividends and certain other income, options trading typically doesn't involve such payments. Therefore, US withholding tax may not apply directly to options trading activities.
Double Tax Agreement (DTA):
Australia and the US have a DTA to prevent double taxation. This agreement ensures that income isn't taxed twice, but it's essential to understand how it applies to your specific situation. For more information on tax treaties please visit the ATO's website or speak to your accountant or financial advisor.
Record-keeping:
Maintain detailed records of all options transactions, including dates, premiums, exercise prices, and outcomes (sold, expired, or exercised). Accurate records are crucial for correct tax reporting.
Professional advice:
Given the complexities of international options trading and taxation, it's advisable to consult with a tax professional experienced in both Australian and US tax laws to ensure compliance and optimise your tax position.
By understanding these tax implications, you can make informed decisions and ensure compliance with Australian tax laws when trading US options. It's important to note that these are general facts for when it comes to trading or investing in options. We always recommend seeking financial advice from a professional if you are not sure or have questions regarding your investment or trading. Further to this, the ATO, has helpful information if you have further enquiries, we recommend contacting them.
Visit our Options Trading page on the website to explore more opportunities and tools to help assist you on your trading journey. Join Tiger Trade today and if you open and fund your account, you'll get four $0 brokerage monthly trades on ASX US stocks or ETFs or US options.*
*New clients & unfunded existing clients only. Only min. brokerage waived for 4 ASX, US stocks, or ETFs or options trades. Third-party fees and other fees still apply. See T&Cs for details.
Capital at risk. Options trading carries a high level of risk and may not be suitable for all investors. You should only trade with money you can afford to lose. See FSG, PDS, TMD and T&Cs via our website before trading. Tiger Brokers Australia does not provide tax service and please consult your accountant for professional advice if needed. Past performance is no guarantee of future results. Graphics and charts are for illustrative purposes only. Tiger Brokers (AU) Pty Limited. ABN 12 007 268 386 AFSL 300767
