Answer the following question:

You have been asked for advice on employee stock options by two different clients.

(a) Omer is part of the management team of a Canadian public company and is eligible for the employee stock option plan. A few years ago he received an option on 1,000 shares. The current price of the shares is $35, and he is optimistic that it will go up. The option requires him to pay the option price of $30 (the value at the time the option was granted) for the shares at the time he exercises his option.He plans to sell these shares when they reach $45

He has asked you to tell him the amount of income he will have to report and when he must report as a result of exercising the option and buying the shares for $30

(b) Hilda is part of the management team of a Canadian-controlled private company and is eligible for the employee stock option plan. A few years ago she received an option on 1,000 shares. The current price of the shares is $35, and she is optimistic that it will go up. The option requires her to pay the option price of $30 (the value at the time the option was granted) for the shares at the time she exercises her option. She plans to sell these shares when they reach $45.

She has asked you to tell her the amount of income she will have to report and when she must report as a result of exercising the option and buying the shares for $30.

Show work clearly. The Adjusted Cost Base = $35. (show how this was calculated)

Use these formulas:

Rules Applicable to Public Corporations:

Exercise Date: Number of Options Exercised x (FMV of shares when options exercised Option Price)

Selling Date: Number of shares sold x (Proceeds of disposition FMV of shares at exercise date)

Rules Applicable to Canadian-Controlled Private Corporations:

Selling Date:

Employment Income = Number of Shares Sold x (FMV of shares when options exercised Option Price)

Capital gain/loss = Number of Shares Sold x (Proceeds of disposition FMV of shares at exercise date)