Pasqual Melo is employed by a public corporation. On January 1, 20X0, she was given an option to purchase 1,000 shares of the public corporation for $8 per share (the option extended for two years).

On December 15, 20X0, she exercised her option and bought 1,000 shares at $8 per share (total = $8,000).

On June 15, 20X3, she sold the 1,000 shares. The value of the shares at the particular dates was as follows:

Date option granted……….………    $ 8.50

Date option exercised……………      10.00

Date shares sold ……………..……      14.00

Required:

1.  Determine the amount and type of income received by Melo and when that income was taxable.

2.  How would your answer change if the value of the shares at the date the option was granted was $8 rather than $8.50?

3. How would your answer change if the employer were a Canadian-controlled private corporation?