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Stock option exercise

What this is

Cash needed to exercise + tax owed + what lands in your account.

Canadian employee stock options: benefit = (market price − strike) × shares. Half of the benefit is taxable income (50% deduction under ITA s.110(1)(d)) if conditions met. Resulting tax owed at marginal rate.

·$200k annual limit on option-deduction eligibility (Budget 2021+, in force from 2021-07-01).
·CCPC (Canadian-Controlled Private Corp) options: tax deferred until shares sold, plus the 50% deduction.
·Public-co options exceeding the $200k cap: no deduction, fully taxed as employment income.

Number of optionsStrike price (CAD)Current share priceMarginal tax rate

Shares are CCPC-eligible (private Canadian corp)

Exercise cost

$40,000

Market value

$110,000

Total benefit

$70,000

Taxable amount

$35,000

Tax owed

$15,141

After-tax cash

$54,859

If you exercise without selling, you owe tax in the year of exercise even though no cash came in. Many employees sell-to-cover the tax bill the same day.

Disclaimer

Educational, not financial advice. Output is generated by an AI assistant using simplified assumptions. Tax rates, contribution limits, and benefit amounts change annually; confirm with a CFP, CPA, or the relevant Canadian regulator (CRA, FSRA, OSC, IIROC) before acting.