Stock options Flashcards
What are stock options?
Provide employees with the right to acquire shares in the company at a stated price for a stated period of time
How is this benefit taxed?
Depends on whether the company granting the option is CCPC, the period of time the employee holds the shares and whether the employee is dealing at arm’s length with the corp
If the company is a CPCC
no income tax consequences until the employee disposes of the shares provided the employee is not related to the controlling shareholders of the company
Calculation for CPCC
FMV at the time the option was exercised minus the option price will be taxed as employment income in the year the shares are sold
Employee can claim a deduction equal to 1/2 of this amount
1/2 of the difference between the ultimate sale price and the FMV of the shares at the date the option was excercised will be reported as a taxable capital gain or allowable capital loss
The portion that is taxed as a capital gain may be eligible for the $750,000 capital gains deduction for shares of a qualified small business corporation
Stock option for public company
employee has to report a taxable employment benefit in the year the option is excercised.
