Let me try to make it simple enough for your bird brain to comprehend: Let's say the exercise price is $12 and the employee exercises options on 100,000 shares at $20. His 'gain' (unrealised) of $800,000 ($2,000,000 - $1,200,000) is taxed as income. If he exercises and sells immediately he has cash to pay the tax - in other words he has $800,000 in the bank to pay the tax of approximately $400,000. Let's suppose he exercises and holds the stock for a year and the stock drops in value to $12. Then he has no cash to pay the tax - The options have cost him $1,200,000 and he receives the same amount but still owes $400,000. He does I believe have a capital loss to offset against his other income - because his ACB is now $20 per share.
As a caveat I should add that there was a proposal to change the tax treatment of options - but I don't know if it was passed into law. But it seems that Canadians are still exercising and selling simultaneously, so the tax aspects must still be a hassle..
But you'll find that |
