Deduction for Stock Options of a Corporation Other Than a CCPC or Options to Purchase Mutual Fund Units
A current or former employee (hereinafter referred to as an "employee") is deemed to receive a taxable benefit in the year he or she acquires a security that is a share of a corporation, other than a Canadian-controlled private corporation (CCPC), or a mutual fund unit.
The employee can claim a security option deduction in his or her income tax return if the following conditions are met:
- The amount that the employee had to pay to acquire the security is equal to or greater than the result of the following calculation:
- 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 if the share had been sold or issued to the employee at the time he or she disposed of the rights provided for under the agreement.
- would have been a mutual fund 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 unit if it had been sold or issued to the employee at the time he or she disposed of the rights provided for under the agreement, and if the trust had not issued units that were different from that unit.
When calculating the amount an individual must pay to acquire a security, do not take into account currency fluctuations that occur between the time the agreement was reached and the time the security is acquired.
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 security 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 security option is granted.
- The benefit is deemed received for an 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 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, unless the employee is claiming a deduction elsewhere in the calculation of his or her taxable income.