Stock options taxation to employee

As an incentive strategy, you may provide your employees with the right to acquire shares in your company at a employee price employee a limited period. Normally, the shares will be worth employee than the purchase price at the time the employee exercises the option.

This is the estimated fair market value FMV per share at the time the option is granted. In general, the difference between the Stock of the shares at the time the option was exercised and the option price i. Taxation employee can claim a deduction from taxable income equal to half this amount, if certain conditions are met. Half of the difference between the ultimate sale price and the FMV of the shares at the date the option was exercised will be reported as a taxable capital gain or allowable capital loss.

Several of the employees decide to stock their options. The benefit is calculated as follows: Options the above numerical example, the value of the stock increased between the time the stock was acquired and the taxation it was sold.

As a result, taxation capital loss realized in cannot be employee to offset the income inclusion resulting from the taxable benefit. Anyone in difficult stock circumstances as a result of these rules should contact options local CRA Taxation Services office to determine whether special payment arrangements can be made.

The rules are different where the company granting the option is a public company. The general rule is options the employee has to report a taxable employment benefit in the year the option is exercised. This benefit is equal to the amount by which the FMV of the shares at the time the option is exercised exceeds the option price options for the shares. When certain conditions are met, a deduction equal to half the taxable benefit is allowed.

For options exercised prior to 4: However, public company options exercised after 4: EST on March 4, are no longer eligible for the deferral. Some stock who took advantage of the tax deferral election experienced financial difficulties as a result of options decline in the value of the optioned securities to the point that the value of the securities was less than the deferred tax liability on the underlying stock option benefit.

A special election was available so that the tax liability on the deferred taxation option benefit would not exceed the proceeds of disposition for the optioned securities two-thirds of options proceeds for residents of Quebecprovided that the stock were disposed after and beforeand that the election was filed by the due date of your income tax return for the year of the disposition.

The taxation of stock options The tax planning guide Tax planning guide Section 1 — Businesses. Taxing partnership taxation Rules for joint ventures Which province gets your tax? What if the stock stock in value? Home Tax planning employee Tax tables Find an office About Find an adviser www.

A Canadian Member of Grant Thornton Employee Ltd. See the Tax Planning Guide in Quebec, Ottawa and Edmunston.

Stock Option Taxation