Question

The following info on employee stock options is available: You are part of the management team...

The following info on employee stock options is available:

You are part of the management team at a Canadian public company and you are eligible for the employee stock option plan.

A few years ago you received an option to purchase the following # of shares: 900

The current price (per share) & the FMV on the date of exercise is: $36

The option requires that you pay the option price of (per share), when exercising the options: $29

FMV of the shares (per share) when the option was granted: $29

You believe the FV of the shares will increase and plan to sell these shares when they reach (per share): $42

Required: calculate the 1) amount of employment income you will be required to report and when you must report it as a result of exercising the option and buying & 2) the tax cost (ACB) going forward.  

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Homework Answers

Answer #1

ESOP Taxation - while exercising the shares -

Perquisite value of ESOP (on date of allotment) = (FMV per share – Exercise price per share) x number of shares allotted.

($36-$29)*900=$6300

The amount calculated above as perquisite value of ESOP i.e. Rs. 4,00,000 shall form part of salary and be taxable in the year of allotment of such shares.

ESOP Taxation - At time of sale:

Capital gains =( Sale price per share – FMV per share at the time of allotment of shares )x number of shares allotted.

=($42-$36)*900=$5400

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