Options Trading Tax Guide Australia

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Investor vs Trader CGT Events explained Buyer vs Writer (Seller) Common scenarios US Options Division 35 Deductions Record keeping Your tax return Common mistakes Revenue account — no CGT ⭐

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Investor or Trader? The most important question.

This single determination changes everything about how your options profits and losses are taxed

Before anything else, you need to determine whether your options activity is treated as investing (CGT treatment) or carrying on a business of trading (revenue/ordinary income treatment). This is not a choice you make — the ATO determines it based on your facts.

Factor	Investor (CGT)	Trader (Revenue)
Tax treatment of gains	Capital gains — CGT schedule, Question 18	Ordinary income — Item 15, business schedule
50% CGT discount	Available if held 12+ months (rare for options)	Never available
Losses	Capital losses — only offset capital gains	Revenue losses — can offset salary (if Div 35 satisfied)
Expenses (brokerage, platforms)	Add to cost base or reduce proceeds	Fully deductible in current year
Division 35	Does not apply	Applies — must pass gateway tests to claim losses
Trading stock rules	Do not apply (ATO ID 2004/526)	May apply in some circumstances

⚠️ Options are different from shares

Even if you are an investor in shares (CGT treatment), your options activity may still be assessed as a business by the ATO due to the inherently speculative, short-term and leveraged nature of options. Many people are surprised to learn their options are on revenue account even though their share portfolio is CGT. The two can coexist — different treatment for different activities.

The ATO's six factors — how they apply to options

From TR 2005/15 and court decisions (Puzey v FCT, Smith v FCT [2010] AATA 576):

Repetition and regularity

Weekly or daily options activity strongly indicates a business. Occasional covered calls on a long-term share portfolio suggests investor.

Profit-making purpose

Are you seeking short-term price movement profits (trader), or using options to generate income on existing holdings like covered calls for yield (investor)?

Businesslike organisation

Do you have a written trading plan, risk management rules, position sizing rules, a trading journal? These evidence a business.

Volume and scale

High number of contracts, large notional exposure, or significant premium flow relative to your financial position points to trading business.

Same kind as commercial operators

Does your approach resemble how a professional options desk or prop trading firm operates?

Your own characterisation

How you describe your activity matters — but is not determinative. Consistency between how you act and how you file is important.

Practical reality: Most active options traders — anyone doing more than occasional covered calls — will be assessed as carrying on a business of trading. If you are regularly selling puts, selling calls, running spreads or iron condors, or trading options as a primary strategy, you are very likely on revenue account. The short-term, leveraged, speculative nature of options is the key distinguishing factor from ordinary share investing.

ATO references: TR 2005/15 ATO ID 2004/526 Smith v FCT [2010] AATA 576 Puzey v FCT [2003]

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CGT Events for Options — D2, C2, A1 explained

ITAA 1997 Division 104 — the legislative framework that governs every options transaction

Options are CGT assets under s.108-5(1) ITAA 1997. Every options transaction triggers one or more CGT events. Understanding which event applies determines your tax treatment.

D2 Granting an option (Writing / Selling to open)

When you write (sell) an option, CGT event D2 occurs under s.104-40 ITAA 1997. This applies to both calls and puts you write/sell.

A capital gain arises immediately equal to the premium received minus incidental costs (brokerage)
The capital gain from D2 is not eligible for the 50% CGT discount — s.115-25(3) ITAA 1997 explicitly excludes D2 gains from the discount
If the option is subsequently exercised, the D2 gain is disregarded (it gets folded into the underlying share transaction instead)
If exercised in a different income year, you must initially report the D2 gain, then amend your return when exercise occurs

Example — Writing a covered call: You write 1 BHP call option (100 shares) and receive a $450 premium. Brokerage is $15. CGT event D2: capital gain of $435 arises immediately. If the option expires worthless, that $435 is your capital gain for the year. If the option is exercised, the $435 gain is disregarded and instead added to the proceeds from selling your BHP shares.

C2 Ending of an option (Expiry or Close-out)

CGT event C2 occurs under s.104-25 ITAA 1997 when an option expires worthless or is closed out (buy to close / sell to close).

For option buyers (holders): When your option expires worthless, C2 occurs. You make a capital loss equal to the premium paid plus brokerage. Capital proceeds are nil (option expired for nothing).
For option writers (sellers): When you buy back an option to close (buy to close), C2 occurs. Capital gain/loss = premium received minus cost to close (buy back price plus brokerage).
Closing out a position = cancellation of the original option → C2 event (ATO ID 2009/111)

Example — Buy to close: You wrote a put option and received $600 premium. Later you buy it back for $200 to close. CGT event C2: capital gain = $600 − $200 − brokerage = $385 gain. The original D2 gain from writing is now replaced/resolved by the C2 close-out.

A1 Disposal of an option (Sell to close before expiry)

CGT event A1 under s.104-10 occurs when you sell an option you hold (sell to close as a buyer, or assign your position).

Capital gain/loss = proceeds from sale minus cost base (premium paid plus brokerage)
If held more than 12 months, the 50% CGT discount may apply — but this is virtually impossible in practice since ASX ETOs have a maximum term of 12 months, and US options are typically much shorter
A1 also occurs on exercise of an option over the underlying shares

Exercise of an option — special rules under Division 134

When a call option is exercised (buyer calls the shares):

For the holder (buyer): the exercise price paid plus the premium originally paid forms the cost base of the acquired shares
For the writer (seller): the exercise price received plus the premium originally received forms part of the proceeds from the share disposal — the D2 gain is disregarded
The 12-month CGT discount clock for the underlying shares starts from the date of exercise, NOT from when the option was purchased

Event	Triggered when	Who	Tax impact
D2	Writing/selling an option	Writer (seller)	Immediate capital gain = premium − costs. No CGT discount.
C2	Option expires or is closed out	Both	Buyer: capital loss = premium paid. Writer: gain/loss on close-out.
A1	Selling an option before expiry	Buyer selling their position	Capital gain/loss. 50% discount possible but rare in practice.
Exercise	Option exercised into shares	Both	D2/C2 gain disregarded. Folded into share cost base / proceeds.

Legislation: s.104-10 ITAA 1997 (A1) s.104-25 ITAA 1997 (C2) s.104-40 ITAA 1997 (D2) Division 134 ITAA 1997 s.115-25(3) ITAA 1997 ATO ID 2009/110 ATO ID 2009/111

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Option Buyer vs Option Writer (Seller) — Tax Compared

Your position in the trade determines which CGT events apply and how you report

If you are the BUYER (holder) of an option

You pay a premium to acquire the right to buy (call) or sell (put) the underlying shares.

No immediate tax event when you buy the option — you simply acquire a CGT asset at cost (premium + brokerage)
Option sold before expiry: CGT event A1 — gain/loss = proceeds minus cost base
Option expires worthless: CGT event C2 — capital loss equal to premium paid plus brokerage
Option exercised: premium paid becomes part of your cost base for the underlying shares (call) or reduces your sale proceeds (put). Division 134 applies.

If you are the WRITER (seller/grantor) of an option

You receive a premium in exchange for the obligation to sell (call writer) or buy (put writer) the underlying shares.

Immediate tax event when you write the option — CGT event D2 — capital gain = premium minus costs. Report in current year.
Option expires worthless: No further event needed — D2 gain already reported. This is your profit locked in.
Option bought back (buy to close): CGT event C2 — gain/loss = original premium received minus buy-back cost. Replaces/resolves the original D2 position.
Option exercised against you: D2 gain disregarded. Premium received added to share proceeds (call writer) or reduces your cost base of shares acquired (put writer).

Critical for writers: CGT event D2 means you report a capital gain in the year you WRITE the option — even if the option hasn't expired or been closed yet. Open positions at year-end still had their D2 gain reported when written. You CANNOT defer this to when the position closes. (ATO ID 2009/110 confirms the premium is assessed in the income year it is credited to your account.)

Revenue account traders — different rules apply

If you are assessed as a revenue account trader (carrying on a business), the CGT framework above still technically applies as the primary code for ETOs under most circumstances. However, your profits and losses are ultimately assessed as ordinary income/deductions because the business character overrides CGT treatment for the net income. In practice, revenue account traders report under Item 15 and the CGT schedule treatment is secondary. Seek specific advice if you have significant volumes.

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Common Options Scenarios — Tax Treatment

Real examples covering the most common strategies Australian options traders use

Scenario 1 — Covered Call (Writing calls on shares you own)

You own 1,000 CBA shares. You write 10 call option contracts (100 shares each) and receive $1,200 in premium.

You write the calls → CGT event D2

Capital gain of $1,200 minus brokerage ($15) = $1,185 gain. Report this year, regardless of outcome.

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Option expires worthless

No further event. $1,185 D2 gain stands. Profit realised. Your CBA shares continue to be held at original cost base.

You buy back (buy to close) → CGT event C2

If you buy back for $500: C2 capital gain = $1,200 − $500 − brokerage. The D2 gain is superseded. Net gain = ~$685.

Option is exercised (shares called away) → D2 disregarded

D2 gain disregarded. Premium ($1,200) added to your sale proceeds. Your CBA shares sold at strike price + $1,200 premium. CGT event A1 on the share sale.

Scenario 2 — Cash-secured Put (Selling puts to acquire shares)

You want to buy BHP at a lower price. You sell a put option with $43 strike, receiving $320 premium.

You write the put → CGT event D2

Capital gain of $320 minus brokerage = ~$305 gain. Report immediately.

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BHP stays above $43 — option expires worthless

D2 gain of ~$305 is your profit. No shares acquired. Cash released.

BHP falls below $43 — put exercised against you

You must buy BHP at $43. D2 gain disregarded. Your cost base for BHP = $43 strike minus $320 premium = effective cost of $40.80/share. 12-month CGT clock starts from date of exercise.

Tax advantage of cash-secured puts: If exercised, the premium received reduces your cost base, effectively lowering your CGT entry point. If not exercised, you retain the full premium as a capital gain (no CGT discount, but still profitable).

Scenario 3 — Buying calls (long call strategy)

You buy 5 call option contracts on WES at a $52 strike for a total premium of $850.

No immediate tax event on purchase
Cost base of the options = $850 + brokerage
If sold before expiry: A1 event — gain or loss on sale proceeds vs cost base
If expired worthless: C2 event — capital loss of $850 + brokerage
If exercised: Premium of $850 becomes part of your cost base for the WES shares. 12-month CGT clock starts from exercise date, not option purchase date.

Scenario 4 — Options spread (Bull call spread, iron condor etc.)

Each leg of a spread is a separate CGT event. There is no "net" treatment recognised by the ATO for spread positions.

The written leg triggers D2 on each written option separately
The bought leg has its own cost base and CGT events
At expiry, each leg has its own C2 event
Revenue account traders may report the net P&L under Item 15 but must still maintain position-by-position records

Practical issue: For investors on capital account doing spreads, each leg must be reported individually on the CGT schedule. This can create a large number of CGT events to report. The ATO does not have a simplified "spread netting" method for individual investors on capital account.

Scenario 5 — Index options (XJO, SPX)

ASX 200 index options (XJO) and US index options (SPX, NDX) are cash-settled — no shares change hands on exercise.

On expiry, cash settlement is treated as a C2 event (ending of the option)
High-volume index option trading is particularly likely to be assessed as a business (revenue account)
No 50% CGT discount on D2 gains (index options are rarely held 12+ months anyway)
US index options may have Section 1256 treatment in the US — this does NOT apply in Australia. Australian residents are taxed under Australian law only.

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US Options — Tax Rules for Australian Residents

CBOE, Interactive Brokers, tastyworks, Schwab — what Australian tax law says about your US options

Many Australian traders trade US options via platforms like Interactive Brokers, tastyworks (tastytrade) or Schwab. The tax treatment follows Australian tax law — not US tax law. US tax rules (like Section 1256 60/40 treatment or mark-to-market elections) do not apply to Australian residents.

Same CGT events apply

US options are CGT assets under Australian law. The same CGT events (D2, C2, A1) apply to US options as to ASX ETOs. The mechanics are identical from an Australian tax perspective.

Currency conversion

All amounts must be converted to Australian dollars at the exchange rate on the date of each transaction.

Use the RBA exchange rate for the date of each trade
Premium received on write: convert USD to AUD on the date written
Cost to close: convert USD to AUD on the date closed
The currency conversion itself does not create a separate CGT event for individuals (under the personal use asset exemption for foreign currency used for personal investment)
Keep your broker's trade confirmations which show USD amounts — you will need to do the AUD conversion separately

Double Taxation Agreement (DTA)

Australia has a DTA with the US. For individual investors and traders, US-sourced options income is generally only taxable in Australia (not also in the US). However, if US withholding tax is deducted, you may be able to claim a foreign income tax offset (FITO) in your Australian return. Most US options activity by Australian residents should not attract US withholding tax as options premiums are not US-source dividend or interest income.

IRS Form 1099 — does it affect your Australian return?

If you trade through a US broker, you may receive a 1099 from the IRS. This is for US tax purposes. As an Australian resident, you report in your Australian tax return using Australian tax law. The 1099 amounts should not simply be copied across — you need to apply Australian CGT rules to each transaction. The 1099 can be useful as a record of transactions but the tax calculations will differ.

Warning — US broker tax statements: Platforms like Interactive Brokers may produce tax statements formatted for US tax law (showing 60/40 treatment, mark-to-market, or wash sale adjustments). These US-specific calculations are irrelevant for your Australian return. You must recalculate your positions from scratch under Australian CGT rules. Do not import your IB tax statement directly into your Australian return without review.

Popular platforms and Australian tax considerations

Platform	AUD conversion records	Tax statement useful?	Notes
Interactive Brokers	Available in Activity Statement	Partially — shows all trades	Export full transaction history. IB AU entity easier for AUD reporting.
tastyworks / tastytrade	USD only — must convert manually	Limited	Download CSV of all trades. Convert each to AUD manually or via spreadsheet.
Schwab International	USD only	US-format only	Full transaction history available for download.
Moomoo (Futu AU)	Some AUD support	Improving	Check if they provide ATO-compatible trade history.

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Revenue Account Options Trader — No CGT. Different Rules.

If you're a business trader, CGT events D2/C2/A1 don't determine your tax — ordinary income under s.6-5 and s.8-1 ITAA 1997 does

The fundamental difference

For a CGT investor: every option transaction is a separate CGT event (D2/C2/A1). Gains and losses sit on the capital account. Losses only offset capital gains.

For a revenue account business trader: options are treated like trading stock or business receipts. Gains are ordinary income under s.6-5 ITAA 1997. Losses are deductions under s.8-1 ITAA 1997. No CGT events determine your outcome — the CGT provisions are overridden by the revenue character of the business. Losses can offset salary and other income (subject to Division 35).

The legislative basis — confirmed by ATO private ruling

ATO Private Ruling 1011472956332 directly addresses a taxpayer who traded shares, options and CFDs as a business. The ATO confirmed:

The taxpayer was carrying on a business of trading in shares, options and CFDs
Income is assessable under s.6-5 ITAA 1997 as ordinary income
Losses are allowable deductions under s.8-1 ITAA 1997
Division 35 applies to prevent losses offsetting other income unless gateway tests are met
The taxpayer traded for short-term gains, monitored markets daily, wrote call options on existing shares, purchased put options, spent 50–60 hours per week trading

This ruling is the closest thing to an ATO confirmation that an active options trader is a business — and it directly matches the profile of most serious Australian options traders.

How income and losses work on revenue account

Transaction	Revenue account treatment	CGT account treatment (investor)
Premium received writing a call	Ordinary income — assessable when received (s.6-5)	CGT event D2 — capital gain immediately
Cost to close a written option	Deductible expense — s.8-1	CGT event C2 — reduces gain/creates loss
Premium paid to buy an option	Deductible when position closed/expired — s.8-1	Cost base of CGT asset
Option expires worthless (held)	Loss deductible — s.8-1	CGT event C2 — capital loss
Net loss for the year	Revenue loss — offsets salary (if Div 35 satisfied)	Capital loss — only offsets capital gains
50% CGT discount	Never available	Available if held 12+ months (rare)
Brokerage	Fully deductible expense in current year	Added to cost base / deducted from proceeds

The anti-overlap provision — s.118-20 ITAA 1997

This is the key technical rule that explains why revenue account traders don't use CGT. Section 118-20 ITAA 1997 reduces a capital gain to the extent the same amount is included in your assessable income as ordinary income. In practice, this means:

If a transaction produces ordinary income (revenue account), any overlapping capital gain under CGT is reduced to nil
Revenue income takes precedence over CGT treatment
You cannot be taxed twice on the same amount under both s.6-5 and CGT

Practical result: Revenue account traders do not report options transactions on the CGT schedule (Question 18) at all. Everything goes through the business income schedule (Item 15). The CGT framework is effectively excluded by s.118-20.

What "ordinary income" means for options — timing of recognition

Under the cash/accruals basis applicable to business traders:

Premiums received (written options): Assessed in the income year the premium is credited to your account — confirmed by ATO (consistent with ATO ID 2009/110). You cannot defer this even if the position is still open at 30 June.
Premiums paid (bought options): Not deductible when paid — only deductible when the position is closed, expires, or is exercised. Until then, the cost is "work in progress."
Open positions at 30 June: Unrealised gains on open positions are NOT assessable. Unrealised losses on open positions are NOT deductible. (ATO ID 2006/313 — market value of open ETO positions not deductible.)
Year-end accruals: If you are on accruals accounting (most business traders), amounts owing but not yet received may be assessable. Cash basis is more common for individual traders.

The year-end open position trap: If you wrote options in June and received premium, that premium is assessable income in the current year — even though the options haven't expired yet and you might still face losses on those positions in July. Many traders are surprised by this timing mismatch. Plan your tax position with open positions in mind before 30 June.

How revenue account traders calculate their taxable income

Gross trading income

All premiums received from writing options + all proceeds from selling options you held + any other trading receipts. This is your "assessable income" for Division 35 Test 1.

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Less: costs of closed/expired positions

Cost to buy back written options (buy to close) + cost of bought options that expired worthless or were sold to close. Deductible under s.8-1 when the position ends.

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Less: business expenses

Brokerage, platform fees, data subscriptions, trade journal, home office, internet, phone, margin interest, education. All fully deductible under s.8-1.

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= Net income or loss from trading business

If positive: assessable ordinary income added to salary and other income. If negative: revenue loss — offset against salary if Division 35 gateway tests satisfied, or deferred.

How to report — Item 15 in your tax return

Revenue account options traders report at Item 15 — Net income or loss from business in the supplementary section of the individual tax return (not the CGT schedule at Question 18).

Label P: Net income or loss from business — your net trading result after all deductions
Business activity description: "Options trading" or "Share and derivatives trading"
Complete the Business and professional items schedule — business income, business expenses, net income/loss
If your loss is deferred under Division 35: complete the Non-commercial business losses schedule — Code 8 if no gateway test satisfied, Code 1 if Test 1 (assessable income) satisfied
Do NOT complete Question 18 (Capital gains) for your options trading activity — that is for investor CGT treatment
If you also have a share portfolio on capital account (as an investor), that portfolio's gains/losses still go to Question 18 — the two activities are reported separately

The three-tier hierarchy — where options income can land

The ATO's framework from TR 2005/15 and private rulings creates three possible treatments for options activity:

Tier	Treatment	Where reported	Loss treatment
1. Business	Ordinary income — s.6-5 ITAA 1997. Carrying on a business of options trading.	Item 15 — business income	Revenue loss — offsets all income (Division 35 applies)
2. Profit-making undertaking	Assessable under s.15-15 ITAA 1997. Commercial activity with profit-making purpose but not a full business.	Item 15 or other income	Loss deductible under s.25-40 — but only if a profit would have been assessable
3. Investor (CGT)	Capital gains treatment — CGT events D2/C2/A1. Holding options as investments.	Question 18 — CGT schedule	Capital loss — only offsets capital gains

Most active options traders will fall into Tier 1 or Tier 2. The ATO has confirmed in multiple private rulings that options trading is "commercial" and "speculative" in character (similar to CFDs and financial futures — TR 2005/15), meaning even non-business options activity generally lands at Tier 2 (revenue) rather than Tier 3 (CGT).

Critical point almost nobody gets right: Even if you are NOT a full business (Tier 1), your options activity is likely still on revenue account under s.15-15 (Tier 2). This means the 50% CGT discount is almost never available for options, regardless of whether you are classified as investor or trader. The only situation where CGT treatment (Tier 3) applies to options is where they are genuinely held as long-term investments — which is rare and almost never the case for short-dated ETOs or US options.

ATO references: s.6-5 ITAA 1997 s.8-1 ITAA 1997 s.15-15 ITAA 1997 s.118-20 ITAA 1997 Private Ruling 1011472956332 TR 2005/15 ATO ID 2006/313

Australian Options Trading Tax Guide

The ATO's six factors — how they apply to options

D2 Granting an option (Writing / Selling to open)

C2 Ending of an option (Expiry or Close-out)

A1 Disposal of an option (Sell to close before expiry)

Exercise of an option — special rules under Division 134

If you are the BUYER (holder) of an option

If you are the WRITER (seller/grantor) of an option

Revenue account traders — different rules apply

Scenario 1 — Covered Call (Writing calls on shares you own)

Scenario 2 — Cash-secured Put (Selling puts to acquire shares)

Scenario 3 — Buying calls (long call strategy)

Scenario 4 — Options spread (Bull call spread, iron condor etc.)

Scenario 5 — Index options (XJO, SPX)

Same CGT events apply

Currency conversion

Double Taxation Agreement (DTA)

IRS Form 1099 — does it affect your Australian return?

Popular platforms and Australian tax considerations

The gross income rule in detail — Test 1

What counts as gross income for options traders?

What if you fail all four tests?

Revenue account traders — expenses fully deductible

Minimum records for every options position

Records that support trader (business) status

Capital account investors (CGT treatment)

Revenue account traders (business income)

If you have BOTH — mixed portfolio (some options on capital, some revenue)

The legislative basis — confirmed by ATO private ruling

How income and losses work on revenue account

The anti-overlap provision — s.118-20 ITAA 1997

What "ordinary income" means for options — timing of recognition

How revenue account traders calculate their taxable income

How to report — Item 15 in your tax return

The three-tier hierarchy — where options income can land

Get your personalised options tax summary