Stock Options From Your Employer
How employee stock options and RSUs are taxed in Canada: the 50% deduction, CCPC deferral, the $200,000 limit, an Ontario example and planning points.
The short version
- When you exercise employee stock options, the gap between what the shares are worth and what you pay is employment income, on your T4.
- If the options qualify, a stock option deduction takes off half of that benefit, so it's taxed like a capital gain. The 2024 plan to cut that deduction to one-third was cancelled in March 2025.
- Options from a Canadian-controlled private corporation (CCPC) aren't taxed until you sell the shares, and get the half deduction if you held them at least two years.
- At big public employers, only the first $200,000 of options vesting each year (valued at grant) qualifies for the deduction for options granted after June 2021.
- RSUs are different: no deduction. The full value at vesting is salary, taxed at your top rate.
Stock Options From Your Employer
Stock options are a lovely thing to be handed and a confusing thing to be taxed on. The tax doesn't arrive when you get them, or when they vest, but when you exercise, and for private companies, not until you sell. In between, the share price can do anything it likes, and your tax bill doesn't care. Most of the expensive surprises come from people who exercised, held, and watched the shares fall below the tax they already owed.
When Is the Tax?
| Event | Public company or non-CCPC | CCPC (Canadian private company) |
|---|---|---|
| Grant | No tax | No tax |
| Vesting | No tax | No tax |
| Exercise | Benefit taxed as employment income, on your T4 | No tax yet |
| Sale of the shares | Capital gain or loss from the value at exercise | Benefit taxed now, plus a capital gain or loss on the rest |
The benefit appears on your T4 with the deduction shown separately; see the T4 slip and taxable employee benefits.
Exercising options this year?
Tell the assistant your salary, province, the option count, strike price, today's price, and whether your employer is public or a Canadian private company. It shows the tax on exercising now, what's withheld, and what you'd owe in April.
Example: Public Company, Ontario
| Amount | |
|---|---|
| Exercise 5,000 options at a $20 strike when the shares trade at $50 | $150,000 benefit |
| Stock option deduction, one-half | -$75,000 |
| Added to taxable income, on a $150,000 salary | $75,000 |
| Extra income tax | about $35,300 |
| Same $150,000 as RSUs instead (no deduction) | about $74,200 |
Your cost for the shares is now $50 each. Sell later at $54 and the extra $20,000 is a capital gain, about $4,480 more tax at that income. Sell at $40 and you have a $50,000 capital loss, which can't offset the $75,000 of employment income you were already taxed on; see capital losses. Cost tracking: adjusted cost base; selling shares in general: stock taxes. Everything else on your pay: income tax.
Does Your Option Qualify for the Deduction?
- The strike price was at least the share value when the option was granted.
- The shares are ordinary common shares.
- You deal at arm's length with the employer.
- The $200,000 limit for options granted after June 30, 2021: at employers that aren't CCPCs and have more than $500 million of annual revenue, only options on up to $200,000 of shares (valued at grant) vesting in a year qualify. The rest are taxed in full.
- CCPC options also qualify if you hold the shares two years after exercise, even if the strike was below value.
Planning Points
- Cashless exercise (sell enough shares to cover the strike and tax) avoids holding a tax bill on shares that can fall.
- Withholding is often short. Employers withhold on the benefit, but at bonus rates that may not match your bracket; see bonus tax. Plan for a balance in April and possibly instalments.
- Spread exercises across years if you can, to stay out of the top bracket; see marginal tax rate.
- RRSP contributions can offset the employment income; see the RRSP tax savings calculator.
- Donating option shares to a charity within 30 days of exercise can remove the other half of the benefit from tax too; see charitable donations.
Stock Option Questions
How are employee stock options taxed in Canada?
The difference between the share value and the exercise price is an employment benefit, taxed when you exercise (or, for CCPC options, when you sell the shares). If the options qualify, half of that benefit is deducted, so it is taxed like a capital gain.
Was the stock option deduction changed to one-third?
It was proposed in 2024 alongside a higher capital gains inclusion rate, but the government cancelled the change in March 2025. The deduction remains one-half.
What is the $200,000 stock option limit?
For options granted after June 30, 2021 by employers that are not CCPCs and have revenue over $500 million, the deduction is only available on options for up to $200,000 of shares, valued at the grant date, vesting in a year.
Are RSUs taxed the same as stock options?
No. Restricted share units have no deduction. Their full value at vesting is employment income, usually with shares sold to cover withholding.
What if my shares drop after I exercise my options?
You still owe tax on the benefit at exercise. The drop is a capital loss, which can only offset capital gains, not the employment benefit already taxed.
Sources: Income Tax Act, section 7 and paragraphs 110(1)(d) and (d.1); CRA, Employee security options: withholding; Bennett Jones, New limits on stock option treatment. Checked October 2026. Examples use our 2026 Ontario rules engine with basic credits. The qualification rules, the $200,000 limit and the donation rule have more conditions than shown. U.S. tax for U.S. citizens is separate.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.