Employee stock options for a public company are subject to Canadian income tax, and Canada Pension Plan levies, when they are exercised and acquired and it is the employer’s obligation to withhold CPP and income tax on the amount of the benefit at that time. However if the employee elects to defer the taxable benefit (under subsection 7(8) of the Canadian Income Tax Act) until the shares are disposed of, the employer is only required to withhold CPP.
An employee who receives stock options for a public company and elects to defer the taxable benefit of up to $100,000 per annum (under subsection 7(8) of the Canadian Income Tax Act) until the shares are disposed of must report the taxable benefit (receipt of the stock option) at the time of disposition (on form T1212) and must pay Canadian income tax at that time.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."