Answer the following question:

Mr. Fredward, who is employed by Public Co. Ltd., was granted an option in year one to purchase up to 5,000 common shares at $10 after completion of his fifth year of employment. The FMV of the common shares at the time of granting the right was $12. He does not have any other shares. During Mr. Fredward's seventh year of employment, he decided to exercise part of his right and purchased 1,000 shares with a FMV of $15 as at that date. Three years later, Mr. Fredward sold the shares for $25 per share.

When option is exercised:

Employment Income = $5000

ACB of 1000 = $15 per share

No Division C deduction available

How would your answer differ if the option price was $13 instead of $10?

When option is exercised:

Employment income = $2000

Division C Deduction = x 2000 = $1000

ACB of 1000 = $15 per share

Why is the division C deduction now available when it was not before? In addition, why a ?