Netcrawler Software Essay

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Date: December 9, 2013 To: Michelle From Olajide Jaji RE: Taxation of stock option benefits. Dear Michelle, You have requested our office consider the below questions categorized in sessions. Part (A) What amounts need to be reported in her 2012 income tax return relating to the 1,000 Netcrawler share acquired in April 2012 and the 2000 shares sold in 2012. Answer to question Facts and Assumptions * Michelle is an employee of Netcrawler Software Limited in 2012. * June 2011, Netcrawler granted Michelle an employee stock option, valid until 2013 to acquire up to 1,000 common shares of Netcrawler at $20 per share. * April 30, 2012, Michelle exercised her stock option and acquired 1,000 common shares of Netcrawler at $20. * Michelle already owned 1,000 Netcrawler shares she previously brought from ex-employee for $10,000 * On same day she exercised her option, Michelle sold all 2,000 Netcrawler shares for $70,000 to an arm’s length party. Issue to analyze Michelle will like to know the tax consequence of her buying 1,000 shares of Netcrawler and selling 2,000 shares in the same year. Analysis based on above information Michelle is deemed to have received a benefit under 7(1), an employee acquiring the shares of an employer is said to not be dealing at arm’s length. Section 7 deals with employee stock options and inclusion of the option benefit. As per CRA bulletin IT-113R4, benefits as a result from stock option are usually included in the individual’s employment income in the year the employee sells or exercised the option. In the case, corporation that granted the stock option is a Canadian-controlled private corporation, the individual do not have to include benefit until such hares are disposed. For 2012 the employment taxable benefit received by Michelle is a follow: Value of shares April 30, 2013 $70,000/2,000 = $35

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