New Stock Option Tax Relief Slow Getting Sorted Out
Back in March 2010 the federal government announced in the 2010 budget some relief for taxpayers caught in a situation where they had to pay taxes on employee stock option paper gains (also called phantom gains). At long last the tax relief is flowing.
The problem was that the gains on these options were considered a separate category of income from the subsequent capital losses on the shares acquired with the stock options. So, taxpayers were unable to offset the gains with the losses. The result was that many taxpayers owed much more in taxes than the actual shares were worth.
The provision in the 2010 budget allows taxpayers to offset the gains and losses as long as they agree to pay a special penalty tax equal to the full amount of the proceeds from selling the shares. This may seem punitive, but it actually works out to be a big improvement for those whose finances would be devastated by an otherwise enormous tax bill.
Announced budgets don’t become law immediately. In this case the relevant legislation became law in December. Shortly thereafter, CRA made the RC310 form available to allow taxpayers to elect to take the new tax treatment. However, in my case it took about 15 weeks to get my refund. Luckier people got theirs sooner, but complications relating to the Alternative Minimum Tax delayed processing some of these RC310 forms.
I don’t know how many other taxpayers are still in limbo, but the people I know who are in this situation have had their cases resolved.
The problem was that the gains on these options were considered a separate category of income from the subsequent capital losses on the shares acquired with the stock options. So, taxpayers were unable to offset the gains with the losses. The result was that many taxpayers owed much more in taxes than the actual shares were worth.
The provision in the 2010 budget allows taxpayers to offset the gains and losses as long as they agree to pay a special penalty tax equal to the full amount of the proceeds from selling the shares. This may seem punitive, but it actually works out to be a big improvement for those whose finances would be devastated by an otherwise enormous tax bill.
Announced budgets don’t become law immediately. In this case the relevant legislation became law in December. Shortly thereafter, CRA made the RC310 form available to allow taxpayers to elect to take the new tax treatment. However, in my case it took about 15 weeks to get my refund. Luckier people got theirs sooner, but complications relating to the Alternative Minimum Tax delayed processing some of these RC310 forms.
I don’t know how many other taxpayers are still in limbo, but the people I know who are in this situation have had their cases resolved.
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