Many employers offer their employees stocks or stock options as a benefit of employment. If you have received security option benefits from your employer, determine whether the Canada Revenue Agency taxes these benefits, which portion of them is taxable and when you should report these benefits on your income tax return.

Income Tax Act

Typically, employees receive security options through one of three different types of arrangements: Through employee stock purchase plans, employees have the chance to purchase company stocks for less than their fair market value. Employees have the option to purchase stocks at predetermined prices through stock option plans, regardless of their increase in value. A stock bonus plan lets employers give their employees stocks for no charge.

The taxable portion of your security option benefits are calculated when you sell or exercise your options. If you sell your options, the taxable portion is the amount of money you earn on the sale. If you exercise your option, the taxable portion of the benefit is the amount you pay for the stocks minus their fair market value.

Stock options can leave you with a nasty tax bill - The Globe and Mail

After you exercise an option or receive free stocks, your employer should note the value of the benefits you received, and he should report that amount in box 14 of your T4 slip. When filing your taxes, add together all of the numbers from box 14 on all of your T4 slips and write that sum on line of your income tax return.

The year you declare your security option benefits varies based on the type of company issuing the benefits.

If the company is a Canadian controlled private corporation, you have to report the benefits the year you sell your securities; if you receive the security options from another type of company, you report the benefits the year when you exercise your stock options. If you receive options from a Canadian controlled private corporation, you do not have to declare them when you exercise the options.

How Are Security Options Benefits Calculated and Taxed? | TurboTax Canada Tips

Instead, you wait until you sell the options, and you report them on the tax return you file for that year. If you receive options as a shareholder rather than an employee, they are not considered as taxable employment benefits.

Because of that, they are not reported on box 14 of your T4, but you may have to declare any earnings from these options as capital gains. Skip to content TurboTax Tips.

Security options

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