John is a long-time employee of ABC Ltd. (“the Company”) and has been granted the following employee stock options. The following two cases are independent of each other. Answer both cases and clearly identify which case your answer relates to.
Case A
- John receives the employee stock option on April 20, 2018. At the time, the FMV of the Company’s shares is $14 each.
- John’s stock option allows him to purchase 800 of the Company’s shares at $25.
- He exercises the stock option on July 2, 2019 to purchase 600 shares of the Company, when the FMV of the shares are at $27.50.
- On December 1, 2020, all of the shares acquired with the option are sold for $26.
- The Company is not a CCPC.
Case B
- John receives the employee stock option on July 18, 2017. At the time, the FMV of the Company’s shares is $28 each.
- John’s stock option allows him to purchase 800 of the Company’s shares at $25.
- He exercises the stock option on March 13, 2018 to purchase 600 shares of the Company, when the FMV of the shares are at $37.
- On December 1, 2020, all of the shares acquired with the option are sold for $40.
- The Company is not a CCPC.
Required:
For all relevant years, compute how John’s transactions affect his i) employment income; ii) Division B income; iii) Division C income; and iv) losses, if any. Show all work and clearly label all amounts and identify the relevant taxation years.
