Options

Table of Contents

See Also

Henley v. The Queen, 2006 DTC 3431, 2006 TCC 347, aff'd supra 2008 DTC 6017, 2007 FCA 370

Common share purchase warrants acquired by the taxpayer had a value at that time equal to their "in-the-money" value of 1 cent per warrant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) appreciation in warrants allocated to employees on capital account 186

Administrative Policy

7 February 2018 External T.I. 2016-0673331E5 - Stock Options - CCPCs

FMV of a stock option is higher than its in-the-money value

The s. 7 rules did not apply where an employee of a consulting company received, as part of his compensation, stock options that had been received by the company on one of its engagements. Accordingly, the fair market value of the options was included in his employment income when received. As to determining “FMV,” CRA stated:

[T]he intrinsic value of an option is not reflective of its FMV; rather, a valuation method that is appropriate in the circumstances should be used to determine the FMV.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit stock options received by independent contractor valued at more than their intrinsic value 211

11 March 2014 Internal T.I. 2013-0513221I7 F - Stock options

stock options with no in-the-money value could have nil FMV

A consultant, but for such options being issued directly to its shareholder, would have been entitled to be granted stock options by a client which complied with the Exchange policies, i.e., at the time of grant, their exercise price was not less than the fair market value of a share of the client (a public corporation). In commenting on the option's FMV, the Directorate stated:

It is possible that no amount would have been included in Corporation's income at the time of granting the options. In fact, it is possible that the FMV of these options at the time of granting was zero given the plan's restriction that the exercise price may not be less than the FMV of the common shares at the time of grant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) double income inclusion under s. 56(2) or (4) to consulting corporation, and under s. 15(1) to its shareholder, where consultant's options issued directly by client to shareholder 109
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) s. 56(2) benefit where corporation implicitly consented to consultant's options being issued by client directly to its shareholder 164
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) implicit transfer by corporation when stock options earned by it were issued directly by its client to its shareholder 169
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) s. 248(28) does not prevent a double income inclusion to corporation under s. 56 and shareholder under s. 15 218
Tax Topics - Income Tax Act - Section 9 - Timing no s. 9(1) income inclusion from consultant being granted stock options until exercise 216
Tax Topics - Income Tax Act - Section 52 - Subsection 52(1) s. 15 benefit due to shareholder receipt of stock options earned by corporation added to the ACB of the exercised shares 157

1 May 2013 Internal T.I. 2009-0321721I7 - Stock Option Recharge on Grant Date

use of Black-Scholes

Canco, a Canadian subsidiary of USCo, a publicly traded company, reimbursed USCo for the "fair value" of stock options granted by USCo to Canco's employees (valued using the Black-Scholes method). In commenting on this method, CRA stated:

It appears that many companies are using the Black-Scholes model to value employee stock options for financial statement purposes, and to compute the recharge amount. The Valuations Section, Compliance Programs Branch has advised us that the Black-Scholes options pricing model is an acceptable approach to use, assuming that it is adjusted for the differences inherent in employee stock options. However, the Black-Scholes model is not the only reasonable model. Further, if the company were subject to audit, the CRA might review the inputs to the model and the adjustments made to it for attributes specific to employee stock options.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) stock option reimbursement in year of grant 286

1 December 2009 External T.I. 2009-0307821E5 - TFSA Contributions - Options and Warrants

in-the-money value not reflective of option value

What are the tax consequences of an employee stock option being contributed to a TFSA? CRA responded:

[T]he property must be contributed to the TFSA at its fair market value (FMV)... . The CRA is of the view that the intrinsic value of a warrant, option, or similar right is not reflective of the property's FMV.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(c) contribution to TFSA – recognition deferred until exercise by TFSA 160

8 February 2005 Interpretation Case No. 52141

in-the-money stock option valuation

Respecting the issuance of stock options to an independent contractor as additional compensation for services rendered, CRA indicated that the in-the-money value of the options at the time of grant would represent the amount of such additional consideration for the services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) stock options valued based on in-the-money value 112
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) subsequent exercise of stock option by independent contractor entailed exchange of financial services 103

15 July 2002 Memorandum 2002 - 0151247

As there would be no market for an incentive option issued to a consultant by a Canadian corporation, and the exercise price at the time of grant was equal to the fair market value of the shares at that time, there would be no benefit to the consultant at the time of grant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit 53

3 May 2000 External T.I. 1999-001391 -

The fair market value of an option "is the greater of:

  • The trading value of the rights received; and
  • The amount by which the fair market value of the shares subject to the option at the time of the option's distribution exceeds the exercise price provided in the option."
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit 141