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

The president described it as ‘one of the most important cases in the history of our country’; in other news, Portugal established a VAT group regime
Clients are facing increased TP audit scrutiny in Hungary. DLA Piper Hungary is therefore using AI and advanced analytics to augment its advice, the firm’s head of TP says
Simpson Thacher & Bartlett and MinterEllisonRuddWatts were among the firms that advised on the deal
AI will mean fewer entry-level roles in tax but also the emergence of new jobs, according to tax expert Isabella Barreto
As World Tax unveils its much-anticipated rankings for 2026, we focus on standout performances by PwC, KPMG and Deloitte across the Asia-Pacific region
The partnership model was looking antiquated even before the UK chancellor’s expected tax raid on LLPs was revealed. An additional tax burden may finally kill it off
The US’s GILTI regime will not be forced upon American multinationals in foreign jurisdictions, Bloomberg has reported; in other news, Ropes & Gray hired two tax partners from Linklaters
APAs should provide a pragmatic means to agree to an arm's-length outcome for an Australian entity and for the ATO, the tax authority said
Overall revenues and average profit per partner also increased in the UK, the ‘big four’ firm revealed
Increasingly complex reporting requirements contributed towards the firm’s growth in tax, it said
Gift this article