Firstly, who can receive NSOs?

Direct employees

YES

EOR employees

YES

CONTRACTORS

YES

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The tax information below is an extremely brief summary for standard situations of the referred relationship, and each situation may of course be different from the norm and have its own specificities.

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More comprehensive information for this country and its work relationships is available on Easop.

General Taxation

Learn about equity schemes and taxation policies in

the

Canada

At grant 👉 No taxation.

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At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income. A specific regime whereby 50% of the spread can be deducted when calculating thetaxable amount can apply, subject to conditions.

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At sale 👉 The gain is taxed as capital gains.

At grant 👉 No taxation.

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At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income. A specific regime whereby 50% of spread can be deducted when calculating the taxable amount can apply, subject to conditions.

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At sale 👉 The gain is taxed as capital gains.

At grant 👉 There are still some inconsistencies in the tax cases and the views expressed by the Canadian revenue authorities, but there should be no taxation.

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At exercise 👉 The spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

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At sale 👉 The gain is taxed as capital gains.

Tax advantages

Learn about equity schemes and taxation policies in

the

Canada

There’s no tax-favored scheme (in the sense of a separate type of equity incentive), but there are tax advantages available at exercise which can reduce the taxation of the spread by 50%.

There’s no tax-favored scheme (in the sense of a separate type of equity incentive), but there are tax advantages available at exercise which can reduce the taxation of the spread by 50%.

There are tax advantages for stock options in Canada, but unfortunately they don’t apply to contractors.

Introduction

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More comprehensive information for this country and its work relationships is available on Easop.

Regular employee

Yes, you can grant non-qualified stock-options (NSO) to employees in Canada.

In a nutshell, what does taxation look like?

At grant 👉 No taxation at grant.
At exercise 👉 The spread is taxed as salary income. There is a possibility of reducing the taxable amount by half, subject to the fulfilment of certain conditions and possible limitations.
At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise may be taxed as capital gain.

Are there tax advantages you should consider?

There are potential tax advantages available when granting stock options to Canadian employees subject to certain conditions and limitations.

Employee via EoR

Yes, you can grant non-qualified stock-options (NSO) to EoR employees in Canada.

In a nutshell, what does taxation look like?

At grant 👉 No taxation at grant.
At exercise 👉 The spread is taxed as salary income. There is a possibility of reducing the taxable amount by half, subject to the fulfillment of certain conditions and possible limitations.
At sale 👉 The difference between the sale price and the fair market value of the shares at the time of exercise may be taxed as capital gain.

Are there tax advantages you should consider?

There are potential tax advantages available when granting stock options to Canadian employees subject to certain conditions and limitations.

Contractor

Yes, you can grant non-qualified stock-options (NSO) to contractors in Canada.

Note that granting stock options to contractors could increase the misclassification risk (i.e. the contractor relationship being requalified as an employer-employee relationship, with all tax consequences that can go with it). This will never be the only factor though, what counts primarily for determining the degree of misclassification risk are factors relating to the modalities of the services performed (control over the contractor’s work, exclusivity, term of the services, etc.).

In a nutshell, what does taxation look like?

Generally, taxation is not entirely clear as stock options have been initially regulated for employees only, and taxation often depends on the legal form chosen by the contractor to perform their activities.

At grant 👉 Normally no taxation at grant.
At exercise 👉 The difference between the FMV of the shares at exercise and the exercise price would normally be taxed at the time of exercise, either as (i) a business income or (ii) a capital gain.
At sale 👉 The difference between the sale price and the FMV of the shares at the time of exercise will be taxed, most likely as capital gain.

What you should know if the grantee works via a personal management company.

In Canada, it may happen that contractors work via personal management companies. A personal management company is a corporate vehicle used in some countries outside of the United States, usually set up for limitation of liability, personal accounting and tax purposes, owned and managed by the same natural person and through which such person provides services as a contractor/freelancer.

If a contractor works via a personal management company it is recommended for the management company to receive and retain the stock options.

Pay attention to:

⚠️ For stock options grants to contractors there are still some inconsistencies in the tax cases and the views expressed by the Canadian revenue authorities, so personal tax advisor assistance is highly recommended.