An employee of a public Canadian corporation receives an option to purchase 1,000 of her employer's common shares at $20 per share in July, 2019. At this time, the fair market value of the stock is $19 per share. In March, 2020, when the fair market value is $26 per share, she exercises the option and immediately sells the shares. By what amount do these transactions increase her Taxable Income?

Question

Quizplus · Accepted Answer

The taxable benefit is calculated as the difference between the fair market value at the time of exercise ($26) and the exercise price ($20), multiplied by the number of shares (1,000). This results in a taxable benefit of $6,000. However, since she immediately sells the shares, the capital gain is $0, and only the taxable benefit is included in her income for 2020.

An Employee of a Public Canadian Corporation Receives an Option