Employee Stock Options
Adjust the inputs below to see how exercising and selling employee stock options affects your Canadian tax picture. Results update instantly.
Inputs
Tax Breakdown per transaction
Taxable benefit
(FMV at exercise − exercise price) $5,000
(FMV at exercise − exercise price) $5,000
Division C deduction
not available — option was in-the-money at grant $0
not available — option was in-the-money at grant $0
Net employment income
$5,000
ACB (cost basis)
equals FMV at exercise date $17,000
equals FMV at exercise date $17,000
Capital gain / (loss)
(sale price − ACB) $3,000
(sale price − ACB) $3,000
Taxable capital gain
50% inclusion rate $1,500
50% inclusion rate $1,500
Where the share's value comes from per share
Option, by component
$20.00
Market value @ exercise
$17.00
Market value at sale
$20.00
Strike price $12.00
Taxable employment income $5.00
Division C deduction (untaxed) $0.00
Capital gain $3.00
How this works
- Step 1 — Grant: Your employer grants you options to buy shares at a set price (the exercise price). No tax at this point.
- Step 2 — Exercise: You exercise the options and buy shares at the exercise price. If the shares are worth more than what you paid, you've received a taxable employment benefit equal to the spread.
- Step 3 — Division C deduction: If the exercise price was at least the share's fair market value when the option was granted (the option was not in-the-money at grant), you can deduct 50% of the benefit from income, effectively halving the inclusion rate to match capital gains treatment. Note that the grant-date FMV never changes the taxable benefit itself — it only determines whether this deduction is available.
- Step 4 — Sale: When you eventually sell, your ACB (adjusted cost base) is effectively the FMV at the time you exercised — not what you paid. The taxable benefit you received is added to your purchase price. Any gain above that ACB is a capital gain, 50% of which is included in income.
This calculator is for educational purposes only and does not constitute tax advice. Consult a qualified tax professional for advice specific to your situation.