Will I have to report any taxable benefit on the personal tax return for exercising employee stock options at a private corporation?
Allan Madan, CA
Generally, in the year the employee stock options are exercised, a taxable employment benefit equal to the difference between the exercise price and the fair market value of the stock on the date of the exercise has to be reported as income on the personal tax return. If shares of a Canadian-controlled private corporation (CCPC)are exercised, the employment benefit can be deferred until the year the shares are sold (if the employee is not related to the controlling shareholders of the corporation). If certain conditions are met (i.e. 1) fair market value of shares at the grant date is less than or equal to the exercise price or 2) shares are held for a minimum of 24 months after exercise), a deduction equivalent to 50% of the employments benefit can be claimed from taxable income.
As well, in the year the shares are sold, 50% of the difference between the selling price and the FMV of the stock options on the date of exercise will be required to be reported on the personal tax return as taxable capital gain or allowable capital loss.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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