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Stock option benefits
When a corporation agrees to sell or issue shares of that corporation, or shares of another corporation with which it does not deal at arm"s length (a related company) to an employee of either the corporation or the related corporation, there will be a future taxable benefit to the employee if the employee was a Canadian resident at the time the agreement took place. The taxable benefit (stock option benefit) occurs if the employee has been granted the right to purchase shares at a price lower than market value. It is calculated when the option is exercised to purchase the shares, being the difference between the actual cost and the market value of the shares at the time they were acquired. There is a second taxable event, which is the capital gain arising on sale of the shares whenever that sale takes place. The capital gain is the difference between the market value at time of acquisition and the sale price. In Canada, one-half of the capital gain is taxable.
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