How is Stock Options Taxed in Canada

Stock options are financial instruments that allow the option holder to buy and sell shares of certain stocks for a set period of time and price. Stock prices can go up or down and have an expiration date. Before the expiration date, the stock option holder must decide whether to exercise the option by buying or selling the specified number of shares, selling the option as is, or letting it expire.


Companies now offer stock options to employees as a financial incentive. These stock options allow employees to purchase company stocks at a discounted rate. Employers can offer a variety of stock options. The CRA’s website has details on the various possibilities. To learn more about how stock options are taxed in Canada, contact IDM Professional Corporation CPA


How do Stock Options work?

The price of a stock option is linked to the price movement of the underlying stock with which it is linked. The option usually moves in the same direction as the stock. When the stock price rises, the option price rises as well. Options are traded as contracts, with each contract containing 100 shares. A number of factors influence the premium of an option. But first, let’s define a premium. A premium is an amount a buyer pays for an option. This premium is the greatest profit that an option seller can make. The following factors have an impact on premiums paid or received:


  • The Intrinsic Value – the difference between the market price and strike price of the option. The strike price is the exercised price of the option.
  • Time – the changes in the underlying stock between the time the option is held and the option’s expiration.


How is it taxed in Canada?

A Canadian Controlled Private Corporations (CCPC) is a firm in which Canadian residents hold and control the majority of voting shares. Private companies don’t trade on public stock exchanges like the Toronto Stock Exchange.


Stock options granted by your employer are not taxable at the time of issuance. There should be no immediate tax effects unless you sell your shares or execute your options. If you buy shares through your workplace, you must report the benefit as taxable income. The taxable benefit is the difference between the exercise price (your purchase price) and the share market value at the time of purchase. CCPC employees are entitled to a unique tax deferral, which means that stock options can not be taxed in Canada until the shares are sold. This helps the employee pay the tax due on the sale of their shares. stock options