Craig Hunt is the general manager of the local professional hockey team, the Vancouver Golden Seals Ltd. (a Canadian public corporation). Assume that today's date is November 15, 2011. Craig has obtained approval from the owner of the hockey club to offer a contract to a 27-year-old free agent player who is available to the highest bidder. In addition to an offer of a $300,000 signing bonus and a $750,000 annual salary, Craig is authorized to offer the following two items as additional compensation:
(a) an interest-free employee loan of $100,000 that will eventually be forgiven by the hockey club;
(b) a stock option to buy 100,000 common shares of Vancouver Golden Seals Ltd. Assume that on the grant date, the fair market value of the common shares is $10 per share, and that the exercise price will be $10 per share.

REQUIRED
(a) Craig has asked you to assume the player will exercise all shares when the FMV is $15.00 per share and then sell the shares immediately on the open market. Outline the income tax consequences with respect to the stock option and explain how this will affect the player's net income for tax purposes.
(b) From the player's perspective, what, if any, are the consequences of the signing bonus and the proposed employee loan that will be forgiven in the final contract year?
(c) Assume instead that the loan will not be forgiven. Calculate the deemed interest benefit of the loan for the 2012 and 2013 taxation years. Assume the prescribed rate of interest on the loan is 6%. Ignore the effects of the leap year.