Strategies for Executive Compensation: Design and Tax Issues for a ...

Stock Options – Rules for Canadian-Controlled
Private Corporations and Ordinary Stock
Option Rules (cont’d)
• the employee does not dispose of the share (other
than because of death) or exchange the share
within 2 years of the date the employee acquired
the share
• the employee has not claimed the regular stock
option deduction under paragraph 110(1)(d)
• Alternatively, employee may be able to claim the
50% deduction under paragraph 110(1)(d) that
is also available for “ordinary” non-CCPC
options
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Stock Options – Rules for Canadian-Controlled
Private Corporations and Ordinary Stock
Option Rules (cont’d)
• Unlike with publicly traded companies subject to
stock exchange rules, there is no requirement
that private company options be issued at fair
market value provided that when shares are
issued they are “fully paid” in cash, past services
or a combination
• “Fully paid” requirement can be an issue with
stock bonuses or immediately exercisable
discounted options for new employees or
employees of a new entity
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Stock Options – Rules for Canadian-Controlled
Private Corporations and Ordinary Stock
Option Rules (cont’d)
• For some CCPCs, employee may be able to
claim capital gains exemption for “qualified small
business corporation shares” (sections 110.6(1)
and 110.6(2.1)) although this is subject to
various restrictions where the taxpayer has
cumulative net investment losses (CNIL) and
allowable investment business losses (ABIL)
and claiming the deduction may trigger
alternative minimum tax (AMT)
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