Stock options can leave you with a nasty tax bill

Ram Balakrishnan February 19, at 3: Hi — wondering if you have had a chance to look at my October 20th question. My question is who is required to send the tax amount to the CRA: If the company split into two, who took over the shares? Also how can I differ the taxes so I can split the taxable profit to multiple years so I pay less taxes? To begin, employees are typically not granted full ownership of the options on the initiation date of the contract, also know as the grant date. This would be an employment benefit equal to the amount by which the value of the shares at the exercise date exceeds the total amount paid.

The income tax consequences of exercising the option depend on whether the company granting the option is a Canadian-controlled private corporation (CCPC), the period of time the employee holds the shares before eventually selling them and whether the employee deals at arm’s- length with the corporation.

The Globe and Mail

As a result, the capital loss realized in cannot be used to offset the income inclusion resulting from the taxable benefit. Anyone in difficult financial circumstances as a result of these rules should contact their local CRA Tax 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 that 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 paid 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 employees who took advantage of the tax deferral election experienced financial difficulties as a result of a 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 stock option benefit would not exceed the proceeds of disposition for the optioned securities two-thirds of such proceeds for residents of Quebec , provided that the securities were disposed after and before , and 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. Is there any employer withholding at vesting or is the only tax consequence that of capital gains at the time of selling the shares? This is not entirely correct. My company sells the stock for taxes one day after the stock vests.

While the difference in stock price is small, there is a difference. My company sells stock on the same day or one day after stock vests and issues a T for the small stock price difference.

Is this the correct treatment? Should the difference on stock price on T be an ACB? Do they differ for non-employees, i. Or are they the same as employees? Thanks for writing this article! What should I do if the stock price is lower at sale relative to the issue date? Can you declare a capital loss in this case? I have a client who received RSU from her employer an American company. Her benefit was included in her income on her T4. Her company does it a different way.

If this amount was not included in her tax deducted at source then can she claim it on her tax return adding it on to her taxes deducted at source? I have received a lot of questions on this lately, as more companies are now offering RSUs vs. People are definitely confused about the tax implications. I will also be writing a similar article on my site — but this is well explained, good work.

What happens if the employee is no longer employed by the time the RSA vests… Tax has been paid on income that will never materialized then…? What are the tax withholding implications for a company that has issued RSUs fully vested to a non Canadian expat? My wife is a Canadian employee of a US based company. She was awarded some RSUs, it was vested last year and the company sold part of it to pay the withholding tax. The problem is the , it looks like the withholding tax was paid to California state while the value of the RSUs was reported in the Canadian T4 with no tax deducted.

How should this be handled? I have no idea. Your company payroll should help with this. If they screwed it up, they should fixed it. If an individual was not full resident of Canada between the grant and the vest date of the RSU. How would CRA treat the tax payment at the vest date case senario the individal is now resident of Canada? This article has 30 comments Oliver D May 22, at 7: Michael James May 22, at 8: Canadian Capitalist May 22, at 9: Greg May 25, at Canadian Capitalist May 25, at 6: Canadian Capitalist May 29, at 7: Curious June 5, at 2: Derek June 11, at John November 19, at George August 20, at 8: Have I been reporting correctly since ?

Thanks in advance for any assistance. US employee December 22, at 9: Joseph December 29, at 5: Canadian Capitalist January 1, at 8: Michele February 17, at 8:

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If the stock options are structured properly, the employee can enjoy the benefit on a tax-effective basis. Employees typically receive stock options, granting them the right to purchase shares of the employer corporation at a fixed price (the exercise price) on a . Tax rules around stock options means you have the same tax bill even if the stock drops in value Canadian taxpayers have made it such a big issue that our government introduced "fairness rules. Ever wonder what the taxation of stock options for employees in Canada are? Read this article for an overview. Did you receive stock options from your Canadian employer? If yes, then it’s highly recommended that you go over the points in this article. Tax Implications for Employee Stock Options CCPC Public Companies – Employee Stock.