(February 27 – 12:15 ET) – The Canada Customs and Revenue Agency has posted an explanatory note on the proposed new tax treatment of employee stock options to its Web site.

Currently the taxable benefit arising from the exercise of stock options must be included in income in the year the options are exercised.

However, under proposed legislation, CCRA notes that eligible employees may elect to defer the taxable benefit arising from options exercised after February 27, 2000. The benefit may be deferred until the earlier of the year in which the eligible employee: disposes of the shares; dies; or leaves Canada.

CCRA defines an eligible employee as one who, at the time the option is granted, deals at arm’s length with the employer and related corporations, and is not a specified shareholder. Eligible securities include common shares of a class listed on a prescribed stock exchange in or outside Canada, or units of a mutual fund trust.

There is no limit that applies directly to the amount of taxable benefit. However, the deferral election is subject to an annual vesting limit of $100,000.

The proposed legislation will also grant an additional deduction for units that are acquired after February 27, 2000, and before 2002 under employee stock options and that are donated to charity.

Qualified charities include: Canadian registered charities; registered Canadian amateur athletic associations; registered national arts service organizations, prescribed universities outside Canada, and Canadian non-profit housing organizations that only provide low cost housing for seniors.
-IE Staff