In determining whether a gain from the disposition of a property, which was acquired on the exercise of an option, was realized on capital or income account, it generally will be appropriate to have regard to the taxpayer's intention at the time at which the taxpayer acquired the option, rather than to have regard to the fact that at the time of exercise of the option, the taxpayer's intention was to immediately dispose of the property at a gain over the exercise price (Thom, Westcon, Snell). However, if the option is exercised a short time after it is granted, with the property acquired on exercise then being sold, this may suggest that the sale of such property was on income account (see Hill-Clark-Francis). Where a direct acquisition of the optioned property would have been on income account, proceeds from the disposition of an option to acquire such property also likely will be on income account (Hillsdale).

The granting of an option on property that is held on capital account will also likely be a transaction on capital account (Cook), whereas the disposition of an option to acquire property whose acquisition would have been an adventure in the nature of trade likely will be on income account (Hillsdale, see also Street).

Options trading where there is no intention of acquiring the subject property may be on income account depending on the circumstances (Imperial Stables). Share options received as additional compensation for lending money to a high-risk borrower generally will be acquired on income account where the business of the taxpayer includes the making of such loans (Roynat).


Imperial Stables (1981) Ltd. v. The Queen, 90 DTC 6135, [1990] 1 CTC 213 (FCTD), aff'd 92 DTC 6189 (FCA)

Martin J. could find no merit in the submission of the Crown that losses sustained by the taxpayer in engaging in "straddle" transactions in Dome share options did not constitute deductible losses on the ground that the trading in those options should be treated in the same way as the taxpayer's dealings in Dome shares (which were found to have given rise to a capital loss). The taxpayer's intention was to profit from speculative trading in the options, and he had no intention of exercising the options to acquire shares.

Cook v. The Queen, 87 DTC 5231, [1987] 1 CTC 377 (FCTD)

The court found that a school teacher married to a former real estate broker purchased 17 acres of rural land in 1971 as a means of financial security and for possible use for a home, and that her husband was not the controlling mind in the transactions. Proceeds of $62,000 and $100,000 received by the taxpayer in 1980 and 1981 for granting options to purchase the property for a total $815,000 in 10 years time were capital proceeds.

Hillsdale Shopping Centre Ltd. v. The Queen, 81 DTC 5261, [1981] CTC 322 (FCA)

Proceeds from the expropriation of an option to purchase land were on income account in light inter alia of the following factors:

  1. although the original plan in acquiring the option was to build a shopping centre on the land, there was no firm resolve to do so - in fact, subsequent events revealed considerable indecision as to whether, or where, a shopping centre should be constructed; and
  2. the corporate shareholder and the manager of the taxpayer both had had an extensive involvement in real estate trading.

Thom v. The Queen, 79 DTC 5324, [1979] CTC 403 (FCTD)

The plaintiff secured an option to purchase land used in an auto-parts business carried on by a company owned by him and his wife, in order to be certain of being able to retain the premises for that business. Ten years later, he exercised the option with the intention of reselling the land at a profit, which he did.

It was held that since the proper time to determine the intention of an optionee is the time of acquiring a binding option rather than the time of exercising the option, the gain from the sale of the land acquired by him was a capital gain.

Westcon Engineering and Contractors Ltd. v. The Queen, 77 DTC 5398, [1977] CTC 567 (FCTD)

The taxpayer which had never been involved in trading aircraft, leased an aircraft for use in its business and obtained, as part of the lease agreement, the option to purchase the aircraft after making all the lease payments. When the aircraft proved no longer suitable to its business, it located a purchaser, exercised the option and sold the aircraft, realizing a capital gain. "It cannot be said that in executing the lease, containing the option to purchase clause, Plaintiff did so with an intention at that time of ultimately disposing of the aircraft for profit."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives exercise of aircraft purchase option and immediate resale 105

See Also

Rogers Estate v. The Queen, 2015 DTC 1029 [at 124], 2014 TCC 348

holding one's employee stock options until just before they expire is not typical of an adventure in the nature of trade

The taxpayer, who was the CEO of a Canadian corporation ("RCI") whose voting and non-voting shares both traded on the TSX, did not deal at arm's length with RCI as he held over 90% of its voting shares. RCI issued stock options to the taxpayer in 1997 pursuant to the RCI employee stock option plan, and in 2007 attached a share appreciation right ("SAR") to all previously granted options, permitting the holder to cash surrender options for their in-the-money value. The taxpayer exercised the SAR in 2007, and reported a capital gain.

Similarly to Baird, Hogan J found that the taxpayer's conduct was inconsistent with an adventure in the nature of trade. He stated (at para. 69):

In most cases, a trader will dispose of the option when he is satisfied with the increase in the money value or profit to be realized through the sale of the option. Mr. Rogers did not behave in this manner. He held the Options right up to the last moment and surrendered them when they were about to expire.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) cash surrender of employee stock options for their value was not shareholder benefit 124
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) capital gain can arise from property which is not capital property 271
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) exercise of stock option surrender plan for FMV was not "remuneration" 121
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(a) s. 7 a complete code for taxation of stock option benefits 230

Richard Street v. Minister of National Revenue, 91 DTC 369, [1991] 1 CTC 2240 (TCC)

Given that at the time the taxpayer exercised his employee stock option to acquire 8,000 shares of his employer "it was his intention to dispose of a substantial portion of them early to liquidate debt" (p. 371), the resulting loss when he sold the shares seven weeks after exercise was on income account.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit income inclusion added to cost on general principles 43

Administrative Policy

30 May 2005 External T.I. 2005-0127861E5 - Securities transactions - capital gain or income

IT-479R applicable but daily share option trading on income account

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.

28 May 2003 External T.I. 2003-0011605 - OEX INDEX OPTIONS

index options governed by IT-479R rather than IT-346R

OEX S&P 100 index options are considered to be options, and not commodity futures, debt obligation futures or commodities, so that the determination whether transactions in such options are on income or capital account is governed by the views stated in IT-479R (securities transactions) rather than IT-346R (commodity futures). CRA stated:

Whether an option transaction is on account of income or capital is a question to be resolved on the basis of the extensive case law that has developed on the issue of income or capital determination.

19 October 1999 External T.I. 9925055 - GAINS & LOSSES ON OPTIONS

options outside RRSP treated as naked options

Respecting a query as to whether a stock call written outside a registered retirement savings plan trust ("RRSP") in order to hedge a stock inside an RRSP a) in order to hedge a stock or a sotck call held inside an RRSP would constitute a naked option, CRA referenced its policies in IT-479R, and stated:

Retirement savings plans are defined in subsection 146(1) of the Act and subparagraph 146(1)(b)(i) therein describes it as "an arrangement... in trust". The trust in such an arrangement is a separate person for income tax purposes and therefore a stock call written outside an RRSP … would constitute a naked option.

May 1995 Executive Institute Round Table, Q. 24 (C.T.O. "Employee Stock Option")

Whether unexercised employee stock option rights become capital property to the estate of the deceased is a question of fact.

8 March 1994 External T.I. 9334005 - GAINS AND LOSSES ON STOCK INDEX FUTURES

eligibility of naked option or stock index futures trading for capital account treatment does not extend to an entity (e.g., mutual fund} whose prime activity is securities trading

Are gains or losses realized on stock index futures contracts by a "quasi-mutual fund unit trust" is a trust as described in s. 204.4(2)(d) on income or capital account?

The correspondent:

noted that the "acquisition" or "sale of stock index futures is similar in nature to a transaction in "naked options" in that no property is actually purchased or sold and, further, that paragraph 25 of … IT-479R states that, while transactions in "naked options" are normally on income account, the Department will accept the reporting of gains or losses on capital account provided this practice is followed consistently from year to year."

The Department noted that although it agreed “that this statement accurately reflects the views of the Department,” it went on to note that the comments in IT-479R, para. 15 that a corporate taxpayer “whose prime activity is trading in securities will be considered to be on income account” were “equally applicable to other taxpayers such as mutual fund trusts or corporations.” Accordingly:

Generally, it is the opinion of the Department that a mutual fund trust or corporation which invests primarily in stock index futures would be engaged in transactions considered to be "adventures in the nature of trade" such that the related gains and losses would be on income account.

IT-479R "Transactions in Securities"

Ordinary taxpayers generally entitled to capital treatment on share option transactions

For taxpayers, other than those described in 24 above [re dealers, trading business, special information], it is a question of fact whether the gains or losses on share option transactions are on income account or capital account. However, the Department 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. However, the Department will accept reporting of gains and losses on capital account provided this practice is followed consistently from year to year.


Ian Gamble, "Income from a Business or Property: General Principles and Current Issues", 2014 Conference Report, Canadian Tax Foundation, 5:1-32

[E]arlier decisions made in the context of option agreements are helpful and persuasive. The courts have looked to the nature of the property underlying the contract to determine whether the option itself was capital property. In other words, the question whether amounts realized on the disposition of the option contract were of a capital nature turned on whether the property underlying the option would have been capital property in the option holder's hands if the option had instead been exercised (and the underlying property acquired). [fn 113: Hill-Clark-Francis Ltd. v. MNR, [1961] Ex. CR 110; David Miller v. MNR, 62 DTC 1303 (Ex. Ct); MNR v. Aldershot Shopping Plaza Ltd., 65 DTC 5018 (Ex. Ct.); Morris Schnek…, 1984 Conference Report (…Canadian Tax Foundation…at 710-11… .]