The taxpayer was involved in purchasing and selling share options on a daily basis in the taxpayer’s U.S.-dollar margin account and had agreed to pay a Mr. X 20% of the profits generated, net of transactions costs. The taxpayer also disposed of two stocks during the year and reported the gain and loss from these on account of capital. Could the share and option transactions be reported on capital and income accunt, respectively? CRA stated:
[A]s indicated in … IT-479R …[t]he CRA generally presumes that:
(a) the gain or loss realized by a holder of options is on the same account as the holder's transactions in shares;
(b) the gain or loss realized by a writer of covered options is on the same account as the underlying shares; and
(c) the gain or loss realized by a writer of naked options is normally on income account.
…[B]ased on the limited information provided, we would conclude that your share option transactions should be treated on income account.