Deduction for Stock Options of a Corporation Other Than a CCPC or Options to Purchase Mutual Fund Trust Units
A current or former employee (hereinafter referred to as an "employee") is deemed to receive a taxable benefit in the year they acquire a security that is a share of a corporation, other than a Canadian-controlled private corporation (CCPC), or a mutual fund trust unit.
The employee can claim a security option deduction (other than for a non-qualified security) in their income tax return if the following conditions are met:
- The amount that the employee has to pay to acquire the security is equal to or greater than the result of the following calculation (done without taking into account currency fluctuations):
- the fair market value (FMV) of the security at the time the agreement was reached;
- minus the amount the employee paid for the right to acquire the security.
- Immediately after the agreement was reached, the employee was dealing at arm's length with the qualifying persons involved (a corporation or a mutual fund trust).
- The security, as applicable:
- is a share covered by subparagraph 110(1)(d)(i.1) of the federal Income Tax Act at the time of sale or issue, or would have been covered by that subparagraph if the share had been sold or issued to the employee at the time they disposed of the rights under the agreement.
- would have been a mutual fund trust unit at the time of sale or issue if the trust had not issued units that were different from that unit.
- would have been a mutual fund trust unit if it had been sold or issued to the employee at the time they disposed of the rights under the agreement, and if the trust had not issued units that were different from that unit.
The security option deduction is equal to 50% of the value of the benefit if one of the following conditions is met:
- 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 stock option is granted.
- The benefit is deemed received for a stock option on listed shares granted after February 21, 2017, to an employee of a corporation whose salaries and wages subject to the health services fund contribution total $10 million or more for the calendar year that includes the time the stock option agreement was reached or the time the shares were acquired.
If neither of these conditions is met, the security option deduction is equal to 25% of the value of the benefit.
You have to enter “L-9” in a blank box of the RL-1 slip (see courtesy translation RL-1-T) for the year in which the securities were acquired, followed by the amount of the security option deduction, except if the value of the security option benefit is included in the employee's income and the employee is claiming a deduction elsewhere in calculating their taxable income.
Under rules that apply to security options granted after June 30, 2021, the total value of the security options that an employee can acquire in a year and that will be eligible for the security option deduction is limited to $200,000. The limit applies to security options granted after June 30, 2021, to an employee of a corporation (other than a CCPC) or a mutual fund trust whose gross annual income is more than $500 million according to its financial statements (or its consolidated financial statements). The rules do not apply to security options granted after June 30 that replace options granted on or before that date. For more information, see the Rules Applicable to Security Options Granted After June 30, 2021, to an Employee of a Corporation, Other Than a CCPC, or a Mutual Fund Trust Whose Gross Annual Income is More Than $500 Million page.