Canadian stock option plans are getting more and more popular these days. The stock options in Canada have become the key component of executive compensations for over last half of the century.
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stock option trading in Canada are controlled and regulated mainly by the CNQ, Nasdaq Canada and Toronto Stock Exchange. The Toronto Stock Exchange is one of the largest stock exchanges of the world by market capitalization and is placed at the sixth position. Recently the NYSE and NASD have imposed some rules limiting the small investor day trading in Canada. The employee stock option benefits in Canada are mainly the expenditures of the employer that qualify under Income Tax Act of Canada. With the current trend in Canada, the stock options are now trickling down to the lower levels in the organizations in Canada. The employers in Canada are now offering stock options in order to recruit and retain the top talent in the labor market in Canada. The trend of offering stock options to the employees is visible in all levels of the organization in Canada.
The briefing given by the Canada employers to the employee include points like who is using the option, the drawbacks involved in the stock option plans, who is getting the options, exercising and terminating the guidelines and the distribution and vesting of the requirements.
The stock options are more tax effective in Canada for the employees than in the US in contrast to the prevalent idea. In the US, under the Internal Revenue Code, 100 percent of the difference between the amount payable by the employee to gain the shares as ordinary income and the fair market value of non-qualified stock options shares on the date of exercise, comes under taxation. However, the Income Tax Act effectively taxes the gains from options at the lower capital gains rate thus causing 50 percent stock option deduction. But the tax treatment scenario in Canada is different from that of the US in case of the US taxpayers that are employed in Canada. There is a potential for double taxation since the Internal Revenue Service will not allow a foreign tax credit for Canadian income taxes paid on the U.S. source income.
Stock options are generally less tax effective to the Canadian employers because the value that is received by the employee is not deductible by the organization for Canadian income tax purposes while in the U.S., the gains on exercising non-qualified stock options are generally deductible by the company itself.