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  1. #1

    Default Tax implications of trading US options in Australia?

    Hello.

    I am an Australian citizen for tax purposes and I have recently started to trade US stock options (puts and calls) through OptionsXpress Australia. I've signed a W8-BEN form and I want to know what this means for me and how I will file my taxes in this financial year. I am also young and relatively new to income tax etc.

    1) If I purchase a call on MSFT, for instance, and I sell that call and make a profit, will I have to pay capital gains on that profit?

    The following are the tax brackets for the 2010-11 financial year:

    $0 – $6,000
    $6,001 – $37,000
    $37,001 – $80,000
    $80,001 – $180,000
    $180,001 and over


    2) Are capital gains counted as income for that financial year?

    If so, if I am in the 2nd lowest tax bracket and I realise a capital gain that bumps me up to the 37,001 - 80,000 bracket, what tax do I pay on the capital gain? Do I pay the tax rate from the 2nd lowest bracket, or the new bracket?


    3) I've heard of "Trader" and "Investor" status in relations to tax. What do these terms mean, what tax benefits do they have and what status should I have if I plan to make an income off trading stock options?

    4) I've seen that Australia has an income tax treaty with the US. What does this mean for my taxes? Do I have to file anything with the IRS in regards to my trading profits/losses?

    5) Can I self-manage my Australian superannuation and invest it into US stock and options?

    6) If I invest in US index options, does this have any tax benefits over simply investing in US stock options? I've heard there is a 60/40 rule in the US taxation system whereby tax is reduced if you invest in index options. Is this the case in Australia?

    7) Can anyone tell me any tax minimisation strategies you personally use for investing in international shares/derivatives markets?


    I know I should seek the advice of a tax professional, but I figure that other Australians who trade international derivatives markets should be able to offer some helpful advice as well.

    Thank you.

  2. #2

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    Default Re: Tax implications of trading US options in Australia?

    G'Day Options2010,

    For guidance on investor/trader issues go to the ASX website and search for a paper named "Taxation Treatment Of Exchange Traded Options", it's available as a PDF.

    The oversea's income issue is a little complex, something I leave for my accountant, but basically when an option position is closed out the profit is converted to AUD, the sum of all the closed positions are then added to my taxable income at the end of the financial year.

    As far as tax minimisation goes there isn't much, unlike property investors who seem to have all sorts of rorts, normally the end of year it's a good time to get rid of dogs if you're holding any.

    As I said, i leave that stuff for my accountant so I suggest to also check with yours.
    Do your own research, all opinions are my own and should not be interpreted as advice.

  3. #3

    Default Re: Tax implications of trading US options in Australia?

    Quote Originally Posted by cutz View Post
    G'Day Options2010,

    For guidance on investor/trader issues go to the ASX website and search for a paper named "Taxation Treatment Of Exchange Traded Options", it's available as a PDF.
    Thanks I'll take a look at that.

    Quote Originally Posted by cutz View Post
    The oversea's income issue is a little complex, something I leave for my accountant, but basically when an option position is closed out the profit is converted to AUD, the sum of all the closed positions are then added to my taxable income at the end of the financial year.
    So you just give your accountant your past statements from your brokerage account and they calculate your net profit/loss for the financial year and add it to your current income? So it is filed under income tax, not capital gains?

    Also, when the profit is converted from USD to AUD, what conversion rate will they use? The average yearly exchange rate or will I have to keep a track of the exchange rate whenever I close out my positions?

    Quote Originally Posted by cutz View Post
    As far as tax minimisation goes there isn't much, unlike property investors who seem to have all sorts of rorts, normally the end of year it's a good time to get rid of dogs if you're holding any.
    What do you mean by "get rid of dogs"?

    Thanks for answering.

  4. #4

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    Default Re: Tax implications of trading US options in Australia?

    Quote Originally Posted by Options2010 View Post
    Also, when the profit is converted from USD to AUD, what conversion rate will they use? The average yearly exchange rate or will I have to keep a track of the exchange rate whenever I close out my positions?
    I give my accountant my yearly statement which is provided by my broker, all the individual round trips are shown and so are the totals. The exchange rate that's used is the rate on the day the position is closed out, and the conversion is automatically applied by my broker.

    Refer to the paper on the ASX site to determine how you should be classified (trader/investor/hedger), it’s a very grey area which you should discuss with your accountant.

    Dogs are stocks which I regret buying (and are showing losses), these can be used to offset capital gains.
    Do your own research, all opinions are my own and should not be interpreted as advice.

  5. #5

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    Default Re: Tax implications of trading US options in Australia?

    Hey options2010,


    Any luck with finding more information on this?


    Bill

  6. #6

    Default Tax implications of trading US options in Australia

    Hi there,

    This question is for anyone who trades US options and is a resident of Australia.

    Are options profits/losses counted as capital gains/losses?
    Do I have to use the average exchange rate of the month in which the position was sold to calculate my profit/loss in $AUD?
    What is the tax advantage of being seen as a "trader" rather than an "investor"?
    How do I qualify as a trader versus an investor?

    Thanks and hope someone can help me.

  7. #7

    Default Re: Tax implications of trading US options in Australia

    Hi Options2010,

    Not sure if you are still following this. Anyway, for your particular situation, my understanding is that there is no taxation.

  8. #8
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    Default Re: Tax implications of trading US options in Australia

    Quote Originally Posted by jlryan87 View Post
    Hi Options2010,

    Not sure if you are still following this. Anyway, for your particular situation, my understanding is that there is no taxation.
    NO TAX !! Are you kidding ?

    O2010,

    Im no longer a resident of Oz but actively traded ops for many years when I was and can say theres is tax to pay just like on any gain made. Like Cutz said find an accountant and look up some of my old posts on this topic, have discussed this before.

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