Accounting for employee stock options canada


However, a tax deduction is available on the exercised options, so that only one-half of the benefit is taxable. If the options are for shares of a Canadian-controlled private corporation CCPC , the taxable benefit is calculated only when the shares are sold, not when the options are exercised. And, for publicly traded shares, assuming they are increasing in value, the longer you wait to exercise, the longer the tax deferral Of course, you can exercise earlier and hold the shares longer to maximize your gain — but in the case of publicly traded shares, you would have to pay the taxes when the shares are exercised.

And while stock options provide significant upside if the company is growing, there is downside risk in holding shares after you have exercised your options. This is because the profit was taxed as employment income, not a capital gain. This would not be an issue when exercising options on CCPC shares, since the taxable benefit is only calculated when the shares are sold.

What Planning is available for stock options? Stock options continue to be a popular form of remuneration and to continue to make the most of them, here are some additional tax planning points to consider:. Check with your employer on how your options are tax withheld and ensure you pay installments on time to avoid interest charges. If you exercise an employee stock option and donate the shares to charity you do not need to include the resulting employee benefit in your income.

The CRA now accepts that an employer should be entitled to a deduction if it: The Queen , TCC 86, in which Transalta had a performance share unit plan that was entirely discretionary, in terms of both settlement and whether any amount would be ultimately payable. A CRA technical interpretation released on April 12, , signals that when an employer has the right to choose between settling an award in cash or shares, no agreement to issue shares exists and, therefore, paragraph 7 3 b should not apply to deny a corporate deduction.

It further states that a discretionary arrangement is not an agreement for the purposes of section 7. Except for the SAR grants, the CRA found that section 7 applied to all of the awards because they created legally-binding obligations to issue shares by USCo assuming that the conditions for vesting were met. The CRA states that the SAR awards provided a right to receive a payment in cash or shares or a combination thereof at the discretion of the plan sponsor.

If the amounts are otherwise deductible under normal corporate tax principles and no legally enforceable rights to shares are created, Canadian employers should be able to claim a deduction going forward. As well, they should consider amending previously filed tax returns. It is important to ensure that an employer or payor of share-based compensation does not create a unilateral contract by committing to issuing shares after an award has been granted but before settlement.

Employers should ensure that the share plan is not an SDA, which can trigger an immediate employee income inclusion if deferrals of compensation do not meet specific exemptions. This is because the profit was taxed as employment income, not a capital gain.

This would not be an issue when exercising options on CCPC shares, since the taxable benefit is only calculated when the shares are sold. What Planning is available for stock options?

Stock options continue to be a popular form of remuneration and to continue to make the most of them, here are some additional tax planning points to consider:. Check with your employer on how your options are tax withheld and ensure you pay installments on time to avoid interest charges.

If you exercise an employee stock option and donate the shares to charity you do not need to include the resulting employee benefit in your income. To be eligible they must qualify for the stock option deduction and be donated in the year and within 30 days of being exercised. By seeking the advice of a financial professional who is familiar with employee options, including the tax element, you can make the most of this potentially lucrative employment perk.

Kerr Financial Group was formed in for the purpose of assisting individuals to maximize their personal financial resources, alleviate their financial and retirement concerns and simplify the administration of their affairs. What are stock options?