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Taxation of Employee Stock Options

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Taxation of Employee Stock Options A common incentive program provided by Canadian employers is a stock option plan. These programs grant employees (including directors) the right to acquire a set number of shares of the employer (or parent) company at a fixed price (“exercise price”) within a set timeframe. Stock option plans are a familiar and valued part of the remuneration package of senior executives. When carefully drafted, they incentivize key employees to identify personally with the Company’s success and development, and maintain loyalty and .

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The fund had a 7. These returns entailed above-average risk, with standard deviation of 7. Despite this risk profile, Morningstar gives the fund a five-star rating. These securities are issued by entities across the United States, and their durations can be variable, generally falling between five and 30 years.

Under normal conditions, the fund focuses on securities with relatively low credit ratings, usually generating higher yields. As of March , the fund held different securities with an effective maturity of 8.

The expense ratio was 0. As of May , the fund's trailing-three-year average return was 4. Load-waived shares of the fund get a five-star rating from Morningstar. The Tax-Free New York Fund aims for a high level of current income that is exempt from New York state personal income taxation in addition to federal taxation. Stock options of Canadian Controlled Private Corporations.

In contrast to the taxation upon exercise for public company stock options, where stock options are issued by a Canadian Controlled Private Corporation CCPC , the taxation of the employment benefit is deferred until the employee disposes of the shares. This deferral recognizes the reduced liquidity for CCPC shares versus public company shares. In addition, the aforementioned requirements to withhold and remit source deductions for the taxable stock option employment benefit do not apply where the taxation of the benefit is deferred under the above rules applicable to CCPCs.

As previously outlined, the acquisition costs to exercise the options and the stock option benefit i. However, where an employee already owns other shares of the employer company, the ACB of all identical shares will be averaged amongst the total shares held. Alternatively, where stock options are exercised and the optioned shares are sold immediately, or within 30 days of exercise and no other identical shares are acquired or disposed during this period , the ACB of the optioned shares sold will not be averaged and can be isolated to that specific sale of the newly-optioned shares to prevent the recognition of any accrued gain or loss on the existing shares held.

Often, a Canadian resident is employed by a Canadian subsidiary of a U. In addition, if the employee provided employment services outside of Canada, the employee may be subject to taxation in that foreign jurisdiction on the stock option benefit which entails additional tax implications.

When an individual dies holding unexercised stock options, the individual may have a deemed employment benefit arise at death. The deemed income inclusion for the deceased employee will be the difference between the FMV of the option rights immediately after death and the amount paid if any to acquire the stock options.

To be eligible for this incentive, the option shares must be publicly-traded securities and the shares or proceeds acquired through exercising the options must be donated to a qualifying charity.

Assuming these qualifications are met, the reduced income inclusion is available if the shares are donated in the year acquired and within 30 days after the option exercise. If the value of the shares decrease in the maximum day period before making the donation, or if only some of the shares or aggregate proceeds received by exercising the options are donated, the tax deduction will be reduced proportionately. As such, you will need to consult with your tax advisor to determine the specific tax implications of your compensation plan and any planning required in your particular situation.

Although the federal Liberal government undertook a review of stock option taxation prior to its first budget in March , no changes to the existing tax legislation governing stock options outlined herein were ultimately proposed in the federal budget.

BMO Wealth Management provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Wealth Management cannot guarantee the information is accurate or complete. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law.

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Les options relles dans les choix dinvestissement. Il voudra ainsi utilisé la source la moins coûteuse.

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