Mike has been an employee of PQR Corp, a public company. In Year 1: Mike was granted an option to acquire 200 shares from PQRs treasury at a price of $20 per share. At the date that the option was granted, the shares were trading on the stock market at $23 per share. In Year 2: Mike exercised the option and acquired all 200 shares. At that time, the shares were trading at $30 per share. In Year 5 (current year): Mike sold all 200 shares for $50 per share.

Note: Shares do not have any special dividends rights or restrictions. No other stock options were granted to Mike by PQR Corp.

Required: (10 Marks)

a) Discuss the income tax consequences (show calculations where possible) for Mikes transactions for;

i) Year-1 ii) Year-2 iii) Year-5 b) What would be the impact to Mike if the PQR were a Canadian-Controlled Private Corporation (CCPC)? Will Mike be able to deduct the stock option deduction to arrive at his taxable income if the PQR were a CCPC? Why or why not?