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 2026

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 firm demonstrated its sweet spot of litigation with an international twist with the recent win for the Danish tax authority…but it’s not a tax case
The recently formed firm has taken a break from hiring EY talent to expand its transactional tax and tax technology capabilities
The AI platform, founded last year by two school friends, is partnering with challenger firms like Unity Advisory and A&M Tax to launch its own assault on the AI tax market
Not only has Aurtus received recognition from ITR in the past, but its founder was both a partner at KPMG and co-founder of Dhruva Advisors
Clients care more about considered counsel than rapid media-friendly soundbites, says Matthew Gilleard, associate director at Infinite
It was also a memorable night for Galicia, KPMG, Skadden and Pinheiro Neto, all of which scooped major awards at a gala ceremony in New York
The former Deloitte UK CEO earned a 45% raise in a year when 1,000 staff reportedly lost their jobs – and the pay gap is only getting bigger
In a seminal development for big law, the 95-year-old firm is set to cease operations after a series of high-profile partner departures
UK Chancellor John Healey extended a VAT cut, suspended tariffs, increased a bank surcharge and vowed to increase funding for HMRC
Kristine Riisberg warned that TP decisions can determine top-up tax exposure under pillar two, while global consensus over the rules remains unsettled
Gift this article