Acco340Lecture 2-3 - Employment Income

If these shares are subsequently disposed a capital

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-If these shares are subsequently disposed, a capital gain or loss can occur depending on whether the sale price is greater or lower than the option price paid to acquire the shares Note: The below 2 points regarding the Stock Option Division C Deduction - ITA 110 (1) (d )   @ 50%  will  be discussed futher in Lecture 10 (ie, not tested in the Midterm exam)  This is because it is a Division C deduction, and hence it cannot be deducted in computing net  employment income, ie Division B income. 1.- Depending on the type of shares being acquired,  a n employee taxable benefit under ITA 7(1) can occur upon exercising the options at a value greater than the option price, however , any benefit reported can be offset by a Division C deduction of 50% under ITA 110(1) as long as the option price at the time of granting, was then equal to or greater than the FMV of the shares . If the option price was less than the FMV, then no ITA 110 (1)(d) deduction is available ie, full taxation on this employee benefit. 2- For CCPC's , a deduction under ITA 110(1)(d) equal to 50% of the reported employee income benefit is also allowed, if the option price on the grant date was equal to or greater than the FMV of the shares. However, if this condition is not met, then the ITA 110(1)(d) deduction is not available , but a similar 50% deduction under ITA 110 (1)(d.1) is available, as long as the shares are held 2 years after their acquisition Tax consequences regarding the exercising of options depend on whether the shares being acquired are for Publicly Traded Corporation Shares or Canadian Controlled Private Corporation (CCPC) Shares 1. Publicly Traded Corporation Shares       = an immediate employee taxable benefit equal to the difference between the                                                                    FMV and the option price 
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  Note: Prior to March 4, 2010 there was an election that would allow a deferral of  part or all of this employee  benefit based on certain conditions  NOTE: Although the deferral of Stock Option Benefits due to exercising options on Publicly Traded Shares - ITA 7 (8) applies up to March 4, 2010, we will not be covering this topic-see Appendix for general information . 2. Canadian Controlled Private Corporation (CCPC)Shares     - no employee taxable benefit equal to the difference                                            between the FMV and the option price needs to be reported. The employee benefit will be                                           reported when the acquired shares are sold.
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