I'm trying to understand the underlying tax/accounting logic of physically settled short puts, particularly because I'm in New Zealand and our tax guidance on this specific situation seems limited.
Example:
* Sell a $1,000 strike put
* Receive $535/share premium
* Put is later exercised
* I am assigned 100 shares and pay $1,000/share
Economically I've paid:
**$1,000 − $535 = $465/share**
I think I understand that under US tax rules, assignment of a written put generally results in the premium reducing the basis of the shares acquired.
What I'm trying to understand is whether this treatment follows naturally from the mechanics of physical settlement, or whether it is simply a specific US tax rule.
In other words, could another jurisdiction reasonably treat these as two entirely separate transactions:
1. $535 profit/income from the written option, and
2. shares acquired at a $1,000 basis,
rather than treating the premium and assignment together and giving the shares a $465 effective basis?
For context, I'm specifically investigating New Zealand treatment, where share options are generally “excepted financial arrangements,” but I haven't found clear guidance addressing the writer of an assigned equity put.
Not asking anyone to give NZ tax advice — I'm mainly trying to understand the legal/accounting rationale behind integrating the premium with the underlying shares.