[epa]

This is correct for Canada too - Please seek advice of a tax professional and not on the internet however:

In a private corporation where an employee is issued stock options, a taxable benefit exists ONLY when you sell the shares for a profit. Unless this is a public company or a non-Canadian controlled company, you will not face a tax liability. Just make sure both owners and any majority investor is a Canadian resident.

Now - there is another question - when you were given the options, were they in the money at the time. This is to say, were the options priced below the FMV at the time of the option being given to you? If they were not, or there was likely no way to tell at that time (they were worthless, and were priced accordingly which it appears), then you will be eligible for an additional tax credit on the gain (it is approximately 50% of the capital gain, it is substantial). Please do your own research in this regard. Also keep in mind selling shares of a QSBC (Qualified small business corporation) means you get up to $800K in TAX FREE gains, once in your life. This is called the life time capital gains exemption. Please do your research here. You likely will pay no tax at all on the capital gain.

[adekok]

> In a private corporation where an employee is issued stock options, a taxable benefit exists ONLY when you sell the shares for a profit.

I really don't think so. There are many cases in Canada of people getting screwed by buying and selling at the wrong time.

If you buy options and immediately sell them, you have the cash to pay the taxes.

If you buy and hold, you are likely to have tax owing. i.e. buy a share at $0.01, where it's FMV is $1.00. You have $9.99 of either capital gains or income, and you have to pay taxes on that.

If the shares later go to $0.00 in value, well, you might have a non-refundable tax credit. But that doesn't matter when you've paid taxes on value which is valueless.

[epa]

I don't agree. If the shares dropped to nil, you would be able to claim an ABIL (allowable business investment loss) for 100% of the drop in share price.

For example: 1) Your share is worth 0.0001. 2) The company goes bankrupt/insolvent/no longer carries on business 3) You include $10-0.0001 * 50% in your income as employment income for the benefit you recieved from options. The tax base of the shares is now $10. 4) You claim a business investment loss of $10 per share. This can be deducted against all income. This in effect negatives 2x the tax you would have had to pay.

Please keep in mind this does not apply to public companies or large non-small business companies. Only to this example he has proposed. Again i suggest approaching a tax accountant.