1 QUESTION 1: (PART A) Mr. John Savage has been employed for many years by a CCPC. Several years ago, Mr. Savage was granted options to acquire 4,000 shares of his employer for $54 per share. At that time, the FMV of the shares was $50 per share. On July 15,2020, Mr. Savage exercises all of these options. At this time, the FMV of the shares is $82 per share. In February, 2021, he sells all of the shares for $97 per share. Calculate the effect of the transactions that took place during 2020 and 2021 on Mr. Savage's employment income, net income and taxable income. Where relevant, identify these effects separately. 9. Answer: 10 When the shares are sold in 2021, the total increase in net income and taxable income is calculated as follows: CALCULATIONS 2 FMV at exercise 3 Cost of Shares 1 Employment income $0 B 11 2 2 15 POD 16 ACB 2 SO 50% 0 $0 17 Capital Gain 18 Inclusion Rate 19 Increase in net income 20 Stock option deduction 21 Increase in taxable income $0 SO 10 Increase in net income SO Stock option deduction Increase in taxable income 2 QUESTION 1: (PART B) Joan Smithers has been employed by a Canadian public company for several years. In 2019, she was granted options to acquire 2.200 of her employer's shares at $10.50 per share. At that time, the shares were trading at $10.00 per share. In 2020, when the shares are trading at S15 per share, she exercises all of these options. In 2021 she sells 1,000 of the shares for S13 per share. Indicate the income tax consequences of each of the stock option 8 events in 2019,2020, and 2021 on Ms. Smithers' net and taxable income. Where relevant, identify these effects 9 separately. 0 1 2 Answer: 3 the exercise of the options in 2020 will have the following income tax consequences: FMV at exercise 5 Cost Of Shares 16 Employment income (Increase in net income) $0 7 Stock option deduction BB Increase in taxable income SO 39 2 2 2 le 11.10 2 6 Employment income (Increase in net income) $0 7 Stock option deduction 8 Increase in taxable income SO 39 10 When the shares are sold in 2021, the income tax consequences are as follows: 41 42 POD 43 ACB 44 Capital Loss $0 45 Inclusion Rate 50% 46 Allowable Capital Loss SO 47 2 2 10 48 49 20 1 QUESTION 1: (PART A) Mr. John Savage has been employed for many years by a CCPC. Several years ago, Mr. Savage was granted options to acquire 4,000 shares of his employer for $54 per share. At that time, the FMV of the shares was $50 per share. On July 15,2020, Mr. Savage exercises all of these options. At this time, the FMV of the shares is $82 per share. In February, 2021, he sells all of the shares for $97 per share. Calculate the effect of the transactions that took place during 2020 and 2021 on Mr. Savage's employment income, net income and taxable income. Where relevant, identify these effects separately. 9. Answer: 10 When the shares are sold in 2021, the total increase in net income and taxable income is calculated as follows: CALCULATIONS 2 FMV at exercise 3 Cost of Shares 1 Employment income $0 B 11 2 2 15 POD 16 ACB 2 SO 50% 0 $0 17 Capital Gain 18 Inclusion Rate 19 Increase in net income 20 Stock option deduction 21 Increase in taxable income $0 SO 10 Increase in net income SO Stock option deduction Increase in taxable income 2 QUESTION 1: (PART B) Joan Smithers has been employed by a Canadian public company for several years. In 2019, she was granted options to acquire 2.200 of her employer's shares at $10.50 per share. At that time, the shares were trading at $10.00 per share. In 2020, when the shares are trading at S15 per share, she exercises all of these options. In 2021 she sells 1,000 of the shares for S13 per share. Indicate the income tax consequences of each of the stock option 8 events in 2019,2020, and 2021 on Ms. Smithers' net and taxable income. Where relevant, identify these effects 9 separately. 0 1 2 Answer: 3 the exercise of the options in 2020 will have the following income tax consequences: FMV at exercise 5 Cost Of Shares 16 Employment income (Increase in net income) $0 7 Stock option deduction BB Increase in taxable income SO 39 2 2 2 le 11.10 2 6 Employment income (Increase in net income) $0 7 Stock option deduction 8 Increase in taxable income SO 39 10 When the shares are sold in 2021, the income tax consequences are as follows: 41 42 POD 43 ACB 44 Capital Loss $0 45 Inclusion Rate 50% 46 Allowable Capital Loss SO 47 2 2 10 48 49 20