How are stock options taxed in ontario

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  1. Stock Options | Raymond Chabot Grant Thornton
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Stock Options | Raymond Chabot Grant Thornton

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Law Foundation of Ontario board of trustees welcomes newest member. The same tax treatment applies to options granted by mutual fund trusts. Shares of Canadian-Controlled Private Corporations If a stock option plan pertains to shares of a Canadian controlled private corporation CCPC , the amount of the benefit is normally taxable as employment income in the year of disposal of the shares.

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Proposed changes In , the federal government released draft legislation to amend the stock option tax regime. Link copied with success! Copy the link to share it. Copy the link.

How Are My Incentive Stock Options Taxed?

Section 5 — Employees. All sections. Section 5 Introduction. Taxable Benefits.

Stock Options. The new regime stems from the Liberal Party's platform during the federal election, and is premised on the notion that the current stock option rules are not sufficiently well-targeted and the preferential tax treatment provided to optionholders accrue disproportionately to a small number of high-income individuals employed by large established corporations.

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Legislative proposals were previously released in , but their implementation was deferred based on concerns raised by various stakeholders. The new rules, which differ in some ways from the previous proposals, are now expected to be effective for all options granted after June 30, Options granted prior to that date and options granted in a tax-deferred exchange in consideration for pre-July options will continue to be governed by the current regime. Generally, an option is considered to have vested in the employee when the employee is able to exercise it and acquire the underlying shares.

If the option agreement does not specify a particular year, then the options will, for the purposes of these rules, be considered to vest on a pro-rata basis over the term of the option, up to a month period which begins the day following the day on which the agreement is entered into. The latter scenario is expected to apply where, for example, options vest solely based on performance-based vesting criteria.

That means that, in each year, the employee can acquire only 12, shares. The proposals do, however, provide a benefit for employers. The employer corporation's deduction, if any, arises in the taxation year of the employer that includes the day on which the employee exercised the option and acquired the Non-Qualified Securities.

There are a number of conditions that must be met in order for an employer corporation to be entitled to this deduction under the proposed new rules.

2. When Stock Option Benefits Become Taxable

It is interesting to note that the proposals provide the benefit of the corporate level tax deduction to the employer corporation—which may well be an entity different from the public corporation which actually grants the option. Under the proposals, large public corporations will also have the ability to "opt-in" to the Non-Qualified Securities regime.

As currently worded, however, the proposals appear to limit this ability to apply only in respect of options granted by the corporation to individuals employed directly by it—as opposed to employees of an issuer's subsidiaries. Such a result was presumably unintended and it remains to be seen whether it will be remedied in the final legislation. The entity that is the employer of an option holder who is granted an option for Non-Qualified Securities is, under the proposals, responsible for notifying employees in writing, no later than 30 days after the day an option is granted, if any underlying shares or a proportion thereof are a Non-Qualified Security and also to notify the Minister in a form to be prescribed but not yet available , if any underlying shares or a proportion thereof are a Non-Qualified Security.

The notice to the Minister must be provided on or before the filing-due date for the taxation year of the particular employer that includes the time that the agreement to issue securities is entered into. The proposed new rules provide a dramatic shift in the tax treatment of stock options. The following key take-aways emerge:.