It's common for start-up and growing businesses to allocate
a percentage of the company's equity to stock options. The
options are used to attract and incentivize key employees who are
given the opportunity to share in the growing value of the
business. However, many employees do not consider the tax
implications of granting and exercising options. Getting familiar
with the applicable tax consequences can help reduce the amount
owing to Canada Revenue Agency (CRA) and avoid one particularly
costly scenario.
Let's Illustrate:
Using a simple example to illustrate: ABC Co. was incorporated
as a Canadian controlled private company (CCPC) that issued common
shares to its founders for a nominal amount, say $0.01/share. The
founders work hard to grow the business and increase value. In year
two after incorporation, to incentivize an expanding team, ABC Co.
grants stock options to key employees, including a signing bonus to
newly hired CFO, John. Like the shares issued to
