Stock Option Exercise: Cashless Exercise Process & Tax Information

What Are Stock Options?

Stock options are incentives offered to employees as part of their compensation. They provide the right to purchase shares of your employer’s company at a fixed price (the exercise price) on or after a specified date (exercise date).

How to Exercise Cashless Stock Options

1. Submit an Instruction Letter
   Send a signed Instruction Letter to your company specifying how many options you want to exercise. (We can provide a sample letter.)
2. Company Exercise Letter
   The company will provide an official Stock Option Exercise Letter containing details like your name, number of shares, exercise price, expiry date, and an authorized signature. This confirms that the company will issue shares based on your instructions.
3. Executing the Exercise

• The shares you exercise will be sold automatically.
• Proceeds from the sale will cover your exercise cost, which will be deducted from your account. (Depending on your brokerage, you may not need to provide a cheque.)
• The share certificates will be booked into your account, typically within 3 business days.

Tax Considerations

• The difference between the Fair Market Value (FMV) of the shares at exercise and the exercise price is treated as employment income and is taxable.
• For Canadian-Controlled Private Corporations
• This taxable benefit is deferred until you sell the shares.
• For Publicly Traded Companies:
• This benefit must be reported as income at the time of exercise.
• Any gain or loss upon selling shares after exercise is treated as a capital gain or loss.
• The company may be required to withhold taxes related to this employment income.

For personalized advice or to discuss your situation in detail, please contact us.