Share with your friends

Employee Stock Options - Realize Tax Savings with Proper Planning

Tax, Employee Stock Option Plans and Private Businesses

New KPMG webinar highlights important considerations


Related content

For many private companies, attracting and retaining key employees is an important factor in ensuring growth and success. Offering your employees stock options is one way to ensure that they benefit directly as your company grows and its value increases, but the related tax implications can be complicated. That's especially true for stock option plans provided by Canadian controlled private corporations, or CCPCs, which are treated differently than those offered by other types of companies.

Under most stock option plans, a company can provide certain employees the right to invest in its shares at a given price. If your company is a CCPC, your employees may be able to defer the payment of tax on the difference between the price they pay when they exercise the option to acquire the share and the value of the share at the time the stock option is exercised (i.e., the "employment benefit") until they eventually sell their shares, instead of when they acquire the shares This special treatment is designed to stimulate employee ownership in small businesses and also recognizes that valuing private company shares is more difficult than valuing public company shares.

This special tax treatment may make stock option plans attractive for many CCPCs, but there are other tax factors that need to be considered before you implement such a plan. For example, you'll have to obtain a reliable valuation of your company's shares and consider special provincial tax rules that apply for Quebec businesses. In addition, employees who eventually sell their shares may be able to reduce the tax they owe on the sale of the shares by qualifying for the capital gains exemption for qualified small business corporation shares, or by claiming a partial deduction on the employment benefit for shares sold after they have been held for a certain amount of time, among other considerations.

Establishing a stock option plan is a possible method of helping to reward and retain key employees. Not only can such plans be tax-effective, but they can also be implemented without reducing the company's cash flow, and can even bring investment funds into the corporation. However, the benefits should be weighed against the potential costs, including diluted ownership for existing shareholders. In addition, the Department of Finance recently announced that it would introduce new changes to the stock option rules to cap stock option grants for employees of certain companies in 2019.

To help you weigh the benefits that a stock option plan can offer you and your employees, KPMG presents "What are the Tax Implications of Employee Stock Option Plans on a Private Business?", the latest webinar in KPMG's new Enterprise Tax on Demand series. Other upcoming short and specific Enterprise Tax on Demand webinars will focus on other important tax-related areas of your business.

To learn more about how tax planning can help your private business, please contact Dino Infanti or visit our website, KPMG private company tax.

Information is current to June 04, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal