Payroll withholding stock options
Administering stock options can be challenging for payroll, particularly where the persons concerned are no longer employees and there are no other earnings from which to make source deductions. These challenges increased after the related income tax source deduction requirements changed in Now that a couple of years have passed, it would be interesting to discover how compliant employers are with the new rules.
For example, the taxable benefit consequences of surrendering options back to an employer, for a cash payment, are the same as if such options had actually been converted into shares. The main challenge in administering stock options is the gap — which may be measured in years — between the events that must be managed:. Simply creating a plan under which employees may either be granted options or acquire shares is not something that triggers a taxable benefit.
Similarly, granting actual options for the future purchase of shares does not itself trigger a taxable benefit. Instead, the general rule is that a taxable benefit occurs when employees either acquire shares or dispose of stock options. When the employer is a Canadian-Controlled Private Corporation a Payroll withholding stock optionsthis payroll withholding stock options changes for issued shares — a taxable benefit is only recognized when employees payroll withholding stock options or otherwise dispose of shares.
The potential gap between the time options are granted and the time share are payroll withholding stock options or disposed of, if the employer was a CCPC, means that persons might payroll withholding stock options longer be employees. How does this affect the required source deductions and reporting?
For income tax purposes, the source deduction rules changed in the federal budget. As of that budget, stock option taxable benefits are deemed to be cash payments to employees. In other words, even if no other payroll withholding stock options or cash are involved, employers must remit income tax source payroll withholding stock options calculated on employee stock option benefits.
Presumably payroll withholding stock options who honour this obligation are not just out of pocket and have the right to recover any such remittance from the former employees concerned. However, there are exceptions to this remittance requirement.
First, this requirement does not apply when the employers is a CCPC, where shares are only taxed in the year of disposal or sale. Second, employers are not required to treat stock option benefits as a cash payment:. For the last two bullets, employers are only required to remit on the net income tax owing after applying the available deduction amounts.
For CPP purposes, the gross taxable benefit amount is a pensionable earning. This status does not change, if at the time the taxable benefit is recognized, the person is no longer in an employment relationship to the employer concerned. None of the deductions above that reduce taxable income are taken into account for CPP purposes. For EI purposes, since they are non-cash, stock option benefits are not payroll withholding stock options earnings and no ROE reporting is required.
Prior to the budget change, the CRA accepted that employers were not required to withhold and remit when the only employment income were taxable benefits. Stock option taxable benefits are T4 reportable, even for benefits that are income taxable in years where otherwise there is no employment relationship. This means the payroll withholding stock options amount of any stock option benefits must always be reported in T4 Boxes 14 and 26, even for former employees.
He can be reached at armcewen shaw. You are commenting using your WordPress. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. The main challenge in administering stock options is the gap — which may be measured in years — between the events that must be managed: Granting employees options to acquire a specific number of shares at a particular price; Such options being exercised or shares being directly acquired; and Employees disposing of their options or stock to either the employer or a 3 rd party.
Second, employers are not required to treat stock option benefits as a cash payment: Leave a Reply Cancel reply Enter your comment here Fill in your details below or click an icon to log in: Email required Address never made payroll withholding stock options. Post was not sent - check your email addresses! Sorry, your blog cannot share posts by email.