Is your company planning to IPO? Here’s what that means for your stock options

In general, where stock options are granted by a CCPC, there is no immediate taxation of the stock option benefit that may arise when the stock options are exercised. These rules will continue to apply to stock options of a CCPC, regardless of when the options are granted.

Tax regime for stock options in Belgium

While these proposed measures have not yet been enacted into law, it is not expected that the rules will change substantially from the draft legislation released on November 30, If you have questions about how the proposed stock benefit taxation changes may affect you or your business, please contact your BDO representative. As noted in the Department of Finance example above, Henry is granted , stock options after July 1, The stock options are to vest evenly over a period of four years, with 50, options vesting in each of , , , and The following chart summarizes the tax implications of exercising these 50, stock options under both the current and the proposed rules:.

Under the proposed system, Henry will be worse off than he would be under the current system. The information in this publication is current as of February 15, This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only.

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The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

Proposed changes to the stock option benefit rules to take effect on July 1, March 08, Changes to the taxation of stock option benefits are coming this summer that will affect certain Canadian employees and their employers. Timeline of proposed changes Changes to the rules governing the taxation of stock option benefits were initially announced as part of the federal budget.

Current rules The current rules state that there is no tax when an employee is granted stock options from their employer or from a company related to their employer. Employer tax implications The taxation of stock options granted by CCPCs will not change under the new rules. Conclusion While these proposed measures have not yet been enacted into law, it is not expected that the rules will change substantially from the draft legislation released on November 30, Appendix As noted in the Department of Finance example above, Henry is granted , stock options after July 1, March 30, Interested in hearing more?

The benefit from exercising an employee stock option is employment income; the profit from selling the acquired shares is a capital gain. And you cannot deduct capital losses against other sources of income. As a result, if the shares that you acquired under an employee stock option later drop in value and you thereby sell them at a capital loss , you cannot offset your ESO benefit using that loss. If you plan on selling the shares you acquire from exercising your employee stock option, you can defer the resulting capital gain by selling these shares the following year.

For instance, if you acquired your shares in , you can defer the need to report and thus pay tax on any capital gain by selling the shares at the beginning of If you sold the shares in , your tax liability for any capital gain would arise on April 30, But by selling the shares on, say, January 1st , you delay that tax liability until April 30, Of course, by delaying the sale, you risk the possibility that the shares will lose value. So, you generally want to sell the shares soon after exercising your employee stock option and acquiring them.

Moreover, the expiry date for some ESOs aligns with the end of the calendar year.

Options "in the money" or certain benefit

One alternative is to exercise your employee stock option as late in the year as possible, which ideally allows you to sell the acquired shares shortly thereafter yet in the following year. You thereby defer the tax liability on the resulting capital gain while both exercising the option before it expires and reducing your exposure to the risk that the shares may lose value. It is only current at the posting date.

Employee Stock Option Taxes: What You Need to Know

It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. Request a Meeting. Resource Library Search.

Share This. What Are ISOs? Figure 1. The Net Investment Income Tax is an additional 3. This example does not account for any AMT owed. Tax Treatment of a Disqualifying Disposition If you fail to fulfill either of the waiting period requirements for a qualified disposition, then you have a disqualifying disposition and you lose the tax advantage of long-term capital gains rates.

Figure 2.

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Timeline of proposed changes.

The Net Investment Income Tax is added on top of their regular income rate. The biggest risk with ISOs is time—which also happens to be the greatest benefit. Bear with us.

How Incentive Stock Options Are Taxed: The Basics

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