Stock options Flashcards
1
Q
Stock options
A
- No tax implications if the employee leaves the stock options unexercised.
- Employment income inclusion when the stock options are exercised, based on the difference between the FMV at the exercise date and the exercise price.
o If the company is a CCPC, then the inclusion is automatically deferred until the year the employee sells the shares. - Possible Division C deduction to offset the employment income inclusion in the year it is taxed.
o If the options are NOT in the money when granted (FMV of shares does not exceed the exercise price), then 50% of the income inclusion may be deducted.
o If the company is a CCPC, the options can be in the money and the Division C deduction still available if the employee holds the shares for at least 24 months after exercise. - A capital gain is also included in the employee’s income when they sell the shares, if the selling price is greater than the ACB, which is the price of the shares when options are exercised. One half of the capital gain is taxable.
- Implications to the employer: any compensation expense related to the stock options is not deductible for tax purposes.
Reference: ITA 7(1)(a), 7(1.1) 110(1)(d-(d.1)
