Acco340Lecture 2-3 - Employment Income

Ii after 5 years the fluctuating prescribed rates

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      ii)  After 5 years , the fluctuating Prescribed Rates will prevail on unpaid balance 2)  HOME PURCHASE  at a new location only (as per moving expense rules eg 40km )      Same fixed ceiling benefit as above,  plus an additional benefit of a Division C deduction  for the  interest benefit that applied on the  first $25,000 of the loan .   FACTORS AFFECTING CALCULATION OF INTEREST BENEFIT FOR THE YEAR     -Outstanding loan balances and number of days loan balances remained unpaid  -CRA Prescribed Rates versus interest rate that apply to the employee’s loan agreement  -Payments of interest to employer (ie, a reduction of the taxable benefit) -Reason for the loan:   -not for a home purchase== fluctuating CRA Prescribed Rates will apply  -for a home purchase== fixed CRA Prescribed Rate ceiling the first 5 years (can be lower not higher)
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 -Also, a home purchase due to relocation== fixed CRA Prescribed Rate ceiling for 5 years and a   Division C deduction for the interest benefit on first $25,000 of the loan                                                                                                 3.STOCK OPTION PLAN BENEFITS -A stock option is a  contractual arrangement  which can allow, but not require, the holder of the options to purchase a specified number of shares, for a specified period of time, at a specified acquisition price . The option price, at the time of issue is usually at or above the market price of the shares . Regardless of the grant (option) price there is no immediate employee taxable benefit at the time of the granting. -Options are normally granted to a defined group of employees to purchase common shares of their company, at a price equal to  the fair market value (FMV) of the shares at the time of the grant. Granting of options at FMV triggers no tax consequences to the  employee or grantor and  provides an incentive to the employees to make efforts that would improve the share performance  of the  company (eg. increase profits that could lead to higher share prices). -For the employee, stock options provides full participation in any future gains on the optioned shares, with no downside risk (ie, employee was not taxed when the options were granted and there are no tax consequences if the options are not exercised). - Whereas the granting of options, per se, has no tax consequences  for the employee, a taxable consequence  for the  employee can occur when the options are exercised   (depending on the type of shares being acquired)  if the  fair market value (FMV) at the time of exercising, is greater than the option price. 
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