Deduction for Canadian-Controlled Private Corporation (CCPC) Stock Options

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An employee or former employee (hereinafter referred to as “employee”) is deemed to receive a taxable benefit in the year the employee sells or exchanges a share he or she acquired under an option, provided the following conditions are met:

  • The corporation that issued or sold the share to the employee was a Canadian-controlled private corporation (CCPC) at the time the agreement was reached. 
  • Immediately after the agreement was reached, the employee was dealing at arm's length with the corporations involved (that is, your corporation, the corporation that made the agreement and the corporation that sold or issued the share to the employee).
  • The employee acquired the share after May 22, 1985, and, if any of the corporations involved is not a CCPC, the following conditions are met: 
    • The share is covered by subparagraph 110(1)(d)(i.1) of the federal Income Tax Act at the time of sale or issue, as applicable.
    • The share was acquired between May 22, 1985, and May 3, 1991 (unless it was acquired before January 1, 1987, under an agreement reached prior to April 24, 1985).
    • The amount the employee paid to acquire the share is equal to or greater than the result of the following calculation:
      • the fair market value (FMV) of the share at the time the agreement was reached,
      • minus the amount the employee paid for the stock option.

In this case, the employee can claim a security option deduction in his or her income tax return if the following conditions are met:

  • The employee sells or exchanges the share in the year.
  • The employee held the share for at least two years (except where the employee died).
  • The employee did not claim the deduction for stock options of a corporation other than a Canadian-controlled private corporation (CCPC) or options to purchase mutual fund units.

If the conditions are not met, the employee can claim the deduction for stock options of a corporation other than a Canadian-controlled private corporation or options to purchase mutual fund units, provided he or she meets the conditions for that deduction.

The security option deduction corresponds to 25% of the value of the benefit deemed received in the year, or to 50%, if the benefit is deemed received for a stock option granted after March 13, 2008, by a small or medium-sized business (SMB) that is an SMB engaged in innovative activities for the calendar year in which the option was granted.

You have to enter “L-10” in a blank box of the RL-1 slip (see courtesy translation RL-1-T) for the year in which the securities were sold, followed by the amount of the security option deduction, unless the employee is claiming a deduction elsewhere in the calculation of his or her taxable income.

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