Can Covered Calls Be Used Inside a TFSA or RRSP? What You Need to Know
Covered Calls in a TFSA or RRSP (Canada): Are They Allowed? Updated Oct 5
One of the most common questions Canadian investors ask is: “Can I sell covered calls in a TFSA or RRSP?” The short answer is yes — but with important rules and limitations you need to know.
✅ What Is a Covered Call?
It’s when you sell a call option on a stock you already own — collecting a premium in exchange for possibly having to sell those shares at a set price. Covered calls can generate income and slightly reduce downside risk, but they cap upside if the stock rallies above your strike.
💼 Are Covered Calls Allowed in Registered Accounts?
Yes. Many Canadian brokerages allow covered call writing in TFSAs and RRSPs because the position is fully hedged by the shares you hold. Exact permissions can vary by brokerage and account level, so check your platform’s options agreement and eligibility tiers.
📜 CRA Considerations: Keep It Conservative
- No naked options in TFSAs: Keep positions fully covered to avoid non-qualified investment issues.
- Avoid business-like trading in a TFSA: If your activity looks like a business, tax treatment could change. Keep frequency and leverage modest.
- Document a conservative intent: Blue-chip names, sensible deltas, and monthly cadence support a non-speculative approach.
Official TFSA info: CRA TFSA page.
🛡️ Why Covered Calls Can Work Well in TFSAs & RRSPs
- Tax advantages: TFSA gains are tax-free; RRSP gains are tax-deferred.
- Compounding inside the account: Premiums can be redeployed quickly.
- Structure encourages discipline: Without margin in TFSAs, strategies stay simpler and safer.
⚠️ Risks & Practical Safeguards
- Assignment risk: Your shares may be called away; align strikes with your willingness to sell.
- Capped upside: Big rallies can leave you underperforming buy-and-hold.
- Corporate events & earnings: Consider avoiding expiries with earnings or dividends that can trigger early assignment.
- Liquidity: Prefer tight spreads and healthy open interest; avoid illiquid chains.
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FAQ
Are covered calls allowed in a TFSA or RRSP?
Most brokerages permit covered calls in these accounts, but you may need to enable options approval first.
What’s the biggest mistake to avoid?
Selling calls on shares you don’t own (naked) in a TFSA. Keep positions fully covered.
Do premiums get taxed?
Within a TFSA, gains are tax-free; RRSP gains are tax-deferred until withdrawal. Confirm specifics with a tax professional.
⚠️ Education only — not tax or investment advice. Policies can change; confirm details with your brokerage and a qualified tax professional.
