John is a long-time employee of ABC Ltd. ("the Company) with following information on the employee stock options he receives from his employer. John receives the employee stock option on July 18, 2017. At the time, the FMV of the Company's shares are $25 each. John's stock option allows him to purchase 100 of the Company's shares at $22. He exercised the stock option on March 13, 2018 to purchase 100 shares of the Company, when the FMV of the shares are at $30. On December 1, 2020, all of the shares acquired with the option are sold for $41. The Company is not a CCPC. John knows that there is no taxable consequences from receiving the stock option in 2017. Do not address this component and there is no mark given for it. Required: 1. Identify whether the employee stock options John receives are "in-the-money""Out-of-the-money" or "At-the-money stock options, and whether John would receive a deduction under ITA 110(1)(d), 110(1)(d.1), or no deduction. 2. Determine the tax consequences in the year John exercises the stock option. Be specific on the effect on Division B and C income. 3. Determine the tax consequences in the year John sells the shares of ABC Ltd. acquired from exercising his employee stock option. Clearly identify the tax year in your answer. Credit is given only for correct answers, and there is generally no part mark for incorrect answers. Showing your work is optional. John is a long-time employee of ABC Ltd. ("the Company) with following information on the employee stock options he receives from his employer. John receives the employee stock option on July 18, 2017. At the time, the FMV of the Company's shares are $25 each. John's stock option allows him to purchase 100 of the Company's shares at $22. He exercised the stock option on March 13, 2018 to purchase 100 shares of the Company, when the FMV of the shares are at $30. On December 1, 2020, all of the shares acquired with the option are sold for $41. The Company is not a CCPC. John knows that there is no taxable consequences from receiving the stock option in 2017. Do not address this component and there is no mark given for it. Required: 1. Identify whether the employee stock options John receives are "in-the-money""Out-of-the-money" or "At-the-money stock options, and whether John would receive a deduction under ITA 110(1)(d), 110(1)(d.1), or no deduction. 2. Determine the tax consequences in the year John exercises the stock option. Be specific on the effect on Division B and C income. 3. Determine the tax consequences in the year John sells the shares of ABC Ltd. acquired from exercising his employee stock option. Clearly identify the tax year in your answer. Credit is given only for correct answers, and there is generally no part mark for incorrect answers. Showing your work is optional
