When a corporation agrees to sell or issue shares of that corporation, or shares of another corporation with which it does not deal at arm"s length (a related company) to an employee of either the corporation or the related corporation, there will be a future taxable benefit to the employee if the employee was a Canadian resident at the time the agreement took place. The taxable benefit (stock option benefit) occurs if the employee has been granted the right to purchase shares at a price lower than market value. It is calculated when the option is exercised to purchase the shares, being the difference between the actual cost and the market value of the shares at the time they were acquired. There is a second taxable event, which is the capital gain arising on sale of the shares whenever that sale takes place. The capital gain is the difference between the market value at time of acquisition and the sale price. In Canada, one-half of the capital gain is taxable.
If you hold stock options at the time you cease to be a Canadian resident, there are no tax consequences upon departing Canada. However, you will be responsible for paying Canadian tax on the stock option benefit arising upon exercise of the option, even though you are not a Canadian resident at the time.
When the stock option applies to shares of a corporation listed on a prescribed Canadian or foreign stock exchange, it is possible to elect to defer the tax on the exercise of the stock option to the date when the shares are eventually sold. This is advantageous when there is a significant amount of tax involved and the employee is not planning to sell the shares until much later.
Please contact Simkover and Associates at 905-943-4046 if you need further accounting services or advice in relation to this topic. Click here for additional contact information