Private ruling: Exchange traded options - closing out of open positions at 30 June
Published: November 2011
Ruling period: Year ended 30 June 2011. | Year ended 30 June 2012.
Date scheme commenced: 1 July 2010.

Ruling: Q1:  | A1: 

Relevant facts and circumstances: You carry on a business of trading in ETO's. The profit and loss made on trades is accounted for on revenue account. You state that premiums are assessed as income when credited to your option cash account held by your broker. Premiums paid for options are treated as deductible when paid out of your option cash account. Some positions remain open at the end of the financial year, (that is they have not been closed, assigned or expired). In most instances, by the time you prepare your income tax return, most of the positions that remained open at 30 June have been closed, assigned or expired. For the year ended 30 June 2011, you had a profit from option trading of a certain amount, which includes premiums received and paid for positions that are open at the end of the financial year. A review of the positions that were open at 30 June 2011, has found that all were closed or assigned in the September 2011 quarter. Due to the drop in share prices which occurred in August and September 2011 the open positions that have been closed or assigned have realised a net loss of a certain amount. If you could account for positions that closed out in the September 2011 quarter in the year ended 30 June 2011, the profits on trades would be reduced to a loss of a certain amount. Whilst you have received the funds for the initial trades of the options, you cannot withdraw the funds until the position is closed. You have a large income tax bill for the year ended 30 June 2011, which has in part been calculated using proceeds from open positions which have subsequently closed for a large financial loss.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5, | Income Tax Assessment Act 1997 Section 8-1, | Income Tax Assessment Act 1997 Section 70-10 and | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: The ultimate profit or loss on an exchange traded option (ETO) contract that remains open at 30 June cannot be accounted for in that year. | Detailed Reasoning - Detailed reasoning: Our view is that when a written ETO contract is registered with the Australian Clearing House Pty Ltd (ACH), that is the time that the taxpayer either becomes entitled to receive a premium (assessable income is derived) or pay a premium (allowable deduction is incurred). There are two ETO contracts (opening and closing) for options that are not exercised by the buyer or left to expire. This may mean that the subsequent closing or offsetting ETO contract in the same contract series may fall in a later financial year. (ETO's are not accounted for once only at closing time as a net profit or loss, there are two separate contracts, one is the derivation of income and one is an outgoing incurred.) The Commissioner has no discretion to change the ATO views expressed in: ATO Interpretative Decision ATO ID 2006/313 Income Tax Share option trading; ATO Interpretative Decision ATO ID 2009/57 Income Tax Exchange Traded Options: derivation of premiums receivable; and ATO Interpretative Decision ATO ID 2009/58 Income Tax Exchange Traded Options: deductibility of premiums payable

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Exchange traded options - closing out of open positions at 30 June: Question: Can the ultimate profit or loss on an exchange traded option (ETO) contract that remains open at 30 June be accounted for in that year?