Investing

Exercising employee stock option question/advice

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  • Aug 13th, 2021 4:48 pm
[OP]
Jr. Member
Oct 11, 2011
149 posts
67 upvotes
Toronto

Exercising employee stock option question/advice

Wonder if the smarter folks on here can help me understand the following situation when it comes to exercising stock options. (All example figures)

So let's say you're working for a public company and have a certain amount of options exercisable at the price of $.75 Your company's stock is currently at $2, and you're bullish on it growing higher (but obviously not guaranteed). The amount of shares for the purposes of this is 10,000.

You also want to capitalize on your current potential profit by exercising all or some of your shares. And use that profit to fund other things (such as real estate).

My understanding is that you can exercise your shares and place it in a TFSA so future gains are not taxed. Or alternatively you can just place these shares in an unregistered account and pay capital gains when you sell.

Can someone help clarify the below scenarios, and secondly which route you would go with in a similar position?

Scenario 1
- Pay the $7500 to exercise the shares
- Transfer them to a TFSA account
- Sell some of them, then leave the rest in the account

The future gains would not be taxed, but how is tax handled at the point where you exercise + transfer into TFSA?

Scenario 2
- Pay the $7500 to exercise the shares
- Transfer them to a cash/non-registered account
- Sell some of them, leave the rest for additional growth

I believe you would need to only pay capital gains when you sell the shares (on 50% of the gain) - is this correct?

And also with this option, you can just choose to hold the shares which would mean no tax implication at all (until whenever you sell down the line) - correct?


Appreciate anyone that has some experience/knowledge in this area and can provide a bit of clarity, particularly on the tax implications. And also opinion on which scenario makes the most sense.
2 replies
Deal Addict
Jul 16, 2019
1540 posts
789 upvotes
I would choose option 1. If you are confident there will be growth, the faster you move it into TSFA the better. You can rebalance by selling/buying inside the TFSA.
Most stock options tend to be staggered i.e they are vested 1/3 of the total amount each year so unless yours is a lumpsum vesting and you have to pay the $7500 in one sum, the gains and taxes will also be spread out over 3 years which may be better.
FYI I am not an expert
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
From what I remember many years back my stock options just showed up on my T4 and I think they were just taxed as employment income. I don't remember having an option as to taxation, the cash was just deposited in my bank account.

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