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Highlights
STOCK OPTIONS
Cashless Exercise of Employee Stock Options
Don R. Sommerfeldt
feature that is becoming more popular in respect of
some employee stock options is a technique often referred to as the
cashless method of exercising the option. In situations where this
feature is used, the employer generally provides participating employees
with a choice between the usual method of exercising the option (i.e.,
paying the exercise price in cash and then acquiring the shares) or
using the cashless exercise method. When the cashless method is used to
exercise an employee stock option, there is usually a lapse of several
days between the date on which the employee exercises the option and the
date on which the employer issues the shares which are the subject of
the option. Don Sommerfeldt discusses a technical interpretation
which was recently issued by the Canada Revenue Agency (the
"Agency") and which enunciates the Agency's administrative
position that, for purposes of paragraph 7(1)(a) of the Income
Tax Act, the amount of the employee's taxable benefit is to be
quantified by reference to the market price of the optioned shares on
the date when the shares are issued, and not by reference to the market
price of those shares on the date when the option is exercised, although
the Agency acknowledges that, by reason of the decision in Benham v.
The Queen, this administrative position may not always apply. As
well, the author briefly reviews the Benham case and then
suggests that the Agency's assessing position in Benham and the
Agency's administrative position in the recent technical interpretation
may be questioned on several grounds.
STOCK OPTIONS
Post-mortem Tax Planning for the Senior Executive –
Stock Options and Equity-based Incentive Plans
Marsha Reid, John Chou
Stock options and other equity-based incentive plans
continue to be a significant component of executive compensation.
Considerable personal wealth can accumulate over an executive's career
as a result of participating in such plans. Consequently, a prudent
estate plan should consider how benefits from these plans are taxed on
death. Marsha Reid and John Chou review how stock options
and other equity-based incentive plans are taxed on death and identify
the issues and opportunities that should be considered in formulating an
estate plan. As the author notes, it is important that an estate plan
include a comprehensive review of the executive's stock options and any
other equity-based compensation plans. In particular, any documentation
or communication outlining the executive's rights and benefits under
stock option plans and other equity compensation plans should be
thoroughly reviewed and kept by the executive or his or her tax advisors
or legal counsel. Depending upon the type of plans in which the
executive participates and how long he or she has participated, there
could be a substantial amount of employment income to be reported in the
year of death. This factor should be considered when considering the
potential income tax liability of the estate. Where the executive has
elected to defer the stock option benefit by holding shares acquired on
the exercise of options, it may be prudent to consider a planned selling
of the shares in order to mitigate the economic risk of a substantial
decline in the fair market value of the shares.
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Board
Randy V. Bauslaugh
Blake, Cassels & Graydon LLP
Toronto
General Editor, Pensions
William R. Holmes
Thorsteinssons
Vancouver
General Editor, Practice
Julie Y. Lee
Osler, Hoskin & Harcourt LLP
Toronto
General Editor, Incentives and Benefits
Elizabeth M. Brown
Hicks Morley Hamilton Stewart Storie LLP
Toronto
Caroline L. Helbronner
Blake, Cassels & Graydon LLP
Toronto
Mariette Matos
Buck Consultants
Toronto
Christina H. Medland
Torys LLP
Toronto |
