AFM202 Study Guide - Final Guide: Employee Stock Option, Dividend, Tax Deduction
18 May 2018
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Final exam part 4
Employee stock options
• Options purchased or written for investment purposes (not issued to employees are compensation)
are subject to taxation as either capital gains or capital losses if the options are considered capital
property or subject to taxation as business income or loss if the options are considered inventory.
• Eploe does’t eeie ta dedutio fo the issuae of eploee stok optios
• Employees who exercise an option to acquire stock in their employer will have an employment
ioe ilusios alulated as (the opa’s stok pie at the tie of eeise- the exercise
price) x the number of options exercised.
• The amount of stock option benefit is added to the ACB. (exercise price plus the stock option
benefit, so basically the market price)
• If its disposed for more than the ACB which is essentially the market price, then a gain will occur,
same for loses. If there are similar shares, then the identical property rules which takes the average
will apply.
• If the taxpayer disposes of the shares acquired upon exercise within 30 days, then they
do’t hae to do aeage.
• If the opoatio that gated stok optio is CCPC ad dealig at a’s legth, the the eploee
does’t hae to epot ioe ilusio util the ea hen the shares acquired upon exercise of
the stock options are sold.
• Division C deduction equal to one half of the employment income inclusion Is allowed if certain
conditions are met
• Dealig at a’s legth
• Ude d: If the stok optio’s eeise pice is equal to or greater than the market price
of the stock at the time that the option was granted.
• If the eploe as a CCPC ad the eploee did’t sell the shaes auied upo eeise
of the stock option for at least two years after the date that the shares were acquired.
• If an employee donates shares acquired upon exercise, then may be entitled to an additional
deduction.
• An employee who meets all of the following condition will be eligible for an additional deduction
equal to one half of the employment income inclusion:
• The shares must have been acquired upon the exercise of an employee stock option
• Shares must be donated to a charity foundation
• Shares must be publicly listed securities (listed on a prescribed stock exchange)
• The donation must be made within 30 days of acquiring the shares
• The tapae ust e etitled to a dedutio ude d (the stok optio’s eeise pie
is equal to or greater than the market price of the stock at the time that the option was
granted)
• If all of the above conditions are met then the taxpayer will not have any taxable income
with respect to the donated employee stock option shares.
Dividends received from Canadian corporations
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Document Summary
If its disposed for more than the acb which is essentially the market price, then a gain will occur, same for loses. If there are similar shares, then the identical property rules which takes the average will apply. If the taxpayer disposes of the shares acquired upon exercise within 30 days, then they do(cid:374)"t ha(cid:448)e to do a(cid:448)e(cid:396)age. If the e(cid:373)plo(cid:455)e(cid:396) (cid:449)as a ccpc a(cid:374)d the e(cid:373)plo(cid:455)ee did(cid:374)"t sell the sha(cid:396)es a(cid:272)(cid:395)ui(cid:396)ed upo(cid:374) e(cid:454)e(cid:396)(cid:272)ise of the stock option for at least two years after the date that the shares were acquired. If all of the above conditions are met then the taxpayer will not have any taxable income with respect to the donated employee stock option shares. Provincial tax credits are 5/11: non eligible dividends are grossed up by 1. 17 and have a tax credit of 21/29. 8/29: non-cash dividends such as assets can be paid and are treated as cash dividends.
