3 4 5 6 7 8 9 CALCULATIONS 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. Answer: 10 When the shares are sold in 2021, the total increase in net income and taxable income is calculated as follows: 11 12 FMV at exercise 13 Cost of Shares 14 Employment income 15 POD S54 16 ACB 97 17 Capital Gain $151 18 Inclusion Rate 50% 76 19 Increase in net income $255 20 Stock option deduction $41 21 Increase in taxable income $259 22 23 QUESTION 1: (PART B) 24 $82 97 $179 2 2 2 10 QUESTION 1: (PART 1) 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 $15 per share, she exercises all of these options. In 2021 she sells 1,000 of the shares for $13 per share. Indicate the income tax consequences of each of the stock option events in 2019,2020, and 2021 on Ms. Smithets' net and taxable income. Where relevant, identify these effects separately. NN 2 2 2 Answer: the exercise of the options in 2020 will have the following income tax consequences: 4 FMV at exercise SIS 5 Cost Of Shares 10 26 Employment income (Increase in net income) $25 37 Stock option deduction 38 Increase in taxable income $30 39 40 When the shares are sold in 2021, the income tax consequences are as follows: 41 42 POD S15 43 ACB 13 44 Capital Loss $28 45 Inclusion Rate 50% 66 Allowable Capital Loss $14 NN 2 2 B D E m F G H 1 $25 Employment income (Increase in net income) Stock option deduction Increase in taxable income $30 When the shares are sold in 2021, the income tax consequences are as follows: POD ACB Capital Loss Inclusion Rate Allowable Capital Loss $15 13 $28 50% $14 10