50.1K

Verified Solution

Link Copied!

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 July 18, 2017. At the time, the FMV of the Companys shares are $30 each.
• Johns stock option allows him to purchase 800 of the Companys shares at $25.
• He exercised the stock option on January 3, 2018 to purchase 600 shares of the Company, when the FMV of the shares are at $31.80.
• On December 1, 2020, all of the shares acquired with the option are sold for $52.
• The Company is a CCPC.

Case B

• John receives the employee stock option on July 18, 2017. At the time, the FMV of the Companys shares is $30 each.
• Johns stock option allows him to purchase 800 of the Companys shares at $25.
• He exercises the stock option on October 17, 2019 to purchase 600 shares of the Company, when the FMV of the shares are at $31.80.
• On December 1, 2020, all of the shares acquired with the option are sold for $20.25.
• The Company is a CCPC.

Required:

For all relevant years, compute how Johns 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.

Answer & Explanation Solved by verified expert

See Answer