Stock option benefit deferral (CCPC)
A stock option benefit deferral for a Canadian-controlled private corporation (CCPC) delays the year in which an employee reports the taxable benefit of an option. The CRA says that where the employer is a CCPC the employee deals with at arm’s length, the benefit is reported for the year the securities are sold.
Employees holding options in a private company can meet this rule when the company is sold. Section 7 of the Income Tax Act sets the stock option rules, and subsection 7(1.1) deals with a CCPC that has agreed to sell or issue shares to an employee who, immediately after the agreement was made, was dealing at arm’s length with it. The CRA says that if your employer is a CCPC you deal with at arm’s length, you only have to report the taxable benefit on your return for the year you sell the securities.
What to check or ask
- Whether the employer is a CCPC and whether the employee deals with it at arm’s length, since the CRA ties the reporting year to both.
- How the sale treats the options: exercised before closing, cashed out or exchanged for new ones. Ask when any benefit is reported and who withholds.
- Whether the option agreement has terms about a change of control, and what the buyer’s offer letter says about them.
Scope of this entry
This entry describes the federal Income Tax Act rule as the CRA explains it, and the subsection is subject to conditions set out in section 7. For how options are handled in a buyout, see are employee stock options taxed before they are exercised.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentLine 10100 – Employment income
- 02Government of Canada — Justice LawsGovernmentIncome Tax Act, section 7 (agreements to sell or issue securities)
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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