Acco340Lecture 2-3 - Employment Income

Eg jan 1 2007 options granted vest to acquire 17000

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EG -Jan. 1, 2007-Options granted & vest to acquire 17,000 shares @ $11 and [email protected] $10 of Public Ltd. - Dec. 31, 2007 - Exercised all options at FMV @ $31 ie, ($31-$11=$20) x17,000=$340,000 benefit Tax issues: I) Maximum Deferral - $100,000 ÷ $10 ( FMV not option price )= 10,000 shares Deferred Benefit - 10,000 shares x $20 ($31- $11) = $200,000                                                                              Employee Benefit $340,000 Deferred Benefit (200,000) 2) Non-deferred benefit - 7,000 shares x ($31 - $11) = $140,000 ( employment income ) 3) Division C Deduction ITA110(1)(d)(ie,50% of inclusion) ( 70,000) Therefore, if deferral election and ITA 110(1)(d) applies, then for 2007 $70,000 ( taxable income ) ====== ITA 7(13) provides for the revocation of the ITA 7(10) election when it may be beneficial to restore the limit in order to obtain a larger deferred income inclusion benefit.
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