Canada: International employees with stock options

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: International employees with stock options

AdobeStock_257740958_employees

Under Canada's Income Tax Act, a stock option granted by a corporation to an employee is generally subject to tax in Canada only when the employee exercises the option and acquires the shares (or cash in lieu).

aiken.jpg

jankovic.jpg

Carrie Aiken


Dan Jankovic

This is the case even where the employee is a non-resident of Canada at the time the option is exercised if the option relates to employment services rendered in Canada. A risk of double tax arises for non-resident stock option holders who exercise employment partially in Canada and partially in another country, since each country may seek to tax the benefit on the basis that it relates to employment exercised in its jurisdiction.

To alleviate this risk, the Canadian tax authorities have adopted the principles articulated in paragraphs 12 to 12.5 in the Commentary on Article 15 of the OECD Model Convention to allocate the stock option benefit for Canadian tax purposes. Under the OECD principles, a stock option benefit is generally apportioned to a source country based on the number of days during the vesting period (that is, the required period of employment before the employee can exercise the option) that employment is exercised in that country over the total number of working days in the vesting period.

These principles apply unless the applicable income tax treaty produces a different result. For example, paragraph 6 in Annex B to the Fifth Protocol to the Canada-US tax treaty provides that, where employee services are performed partly in Canada and partly in the US between the grant and exercise of an option, the employee is deemed to have derived the proportion of the benefit in Canada based on the number of days between the date of grant and the date of exercise in which the employee's principal place of employment was situated in Canada.

Carrie Aiken (carrie.aiken@blakes.com)

Tel: +1 403 260 9775

Dan Jankovic (dan.jankovic@blakes.com)

Tel: +1 403 260 9725

Blake, Cassels & Graydon, Calgary office

Website: www.blakes.com

more across site & shared bottom lb ros

More from across our site

Luxembourg’s reform agenda continues at pace in 2025, with targeted measures for start-ups and alternative investment funds
Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Gift this article