CGT for closing a written option

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(Initiate)Initiate

20 Aug 2023

Suppose in May 2023, I sell-to-open an AAPL option and receive $500. I believe this is a CGT event D2, treated as a capital gain of $500 for FY2023.

Now in Jan 2024, I buy-to-close that option, paying $400. This will be a CGT event C2.

Now the rule under subsection 104-25(3) of the ITAA 1997 says "you make a capital gain from CGT event C2 if the capital proceeds from the ending are more than the asset’s cost base. You make a capital loss if those capital proceeds are less than the asset’s reduced cost base."

My question is: what is the (reduced) cost base in this case? And so what capital gain or loss do I record in Jan 2024?

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AriATO

(Community Support)Community Support

30 Aug 2023

Hi @kww

For our response we assume that there are no employee share scheme implications, and you are not in the business of trading options.

When you buy-to-close the option, this will trigger CGT event C2. The time of the CGT event will be January 2024. The reduced cost base of the asset will be $400 and you will have a capital loss of $400 at this time.