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

Michel Braun of WTS Digital reviews ITR’s inaugural AI in tax event, and concludes that AI will enhance, not replace, the tax professional
The report is solid and balanced as it correctly underscores the ambitious institutional redesign that Brazil has undertaken in adopting a dual VAT model, experts tell ITR
The Brazilian law firm partner warns against going independent too early, considers the weight of political pressure, and tells ITR what makes tax cool
The lessons from Ireland are clear: selective, targeted, and credible fiscal incentives can unlock supply and investment
The ITR in-house award winner delves into his dramatic novelisation of tax transformation, and declares that 'tax doesn’t need AI right now'
Recent news of job cuts at EY is symptomatic of how the PwC controversy has tarnished the reputation of the entire ‘big four’
Experts reportedly discussed extending the safe harbour to 2027 to give countries more time to legislate; in other news, Baker McKenzie and Greenberg Traurig made senior tax hires
Awards
Submit your nominations to this year's WIBL Americas Awards by January 23
Recent changes in UK tax rules and cross-border requirements are generating high demand for specialist advice, according to MHA
Hany Elnaggar examines how Gulf Cooperation Council countries are internalising transfer pricing norms within evolving fiscal systems shaped by both Islamic and international influences
Gift this article