Business Investment Loss On Stock Options For Bankrupt Company

by Tax Guy - Burlington Accountant on March 16, 2009 Print This Post Print This Post

Question: Hi, I do have a tax question for you. I’ve been filing a T1212 for several years now, deferring my security options. To be honest though, I’m a bit confused about how it all works. For instance, a couple of years ago that company went under and filed for bankruptcy. My security options that I have been deferring are worthless so I cannot dispose them. Can I write them off as a Business Investment Loss? Or is it to be filed under Capital Loss? And would I need to file a T1212 for the tax year? Thanks!

What is a T1212?

A T1212 “Statement of Deferred Security Options Benefits”, is a Canada Revenue Agency form used to keep track of the benefits deferred as a result of exercising a options after February 27, 2000.

A taxable benefit is a benefit you received from the company other than your pay.  If you paid for the stock options then you should not have been filing the T1212 because there was really no benefit to defer.

On the other hand, if you were granted stock options from your company and had been deferring the benefit using form T1212, then you include the benefit when you actually exercise the options. When you exercise the stock option, the difference between the price you actually paid for the shares and the price the shares are currently trading is added to your income.  If certain requirements are met, you would also receive a partial offsetting deduction of ½ the benefit.  This results in having your benefit taxed the same way as a capital gain.

Is There A Benefit?

In you case you have received stock option as a benefit from employment.  Since this is a benefit based on the future value of the underlying shares and these shares are now bankrupt and worthless, there is really no benefit.  Similarly, there is no actual capital loss or allowable business investment loss either since you invested nothing.

Consider it this way.  You acquired options at nil and when the corporation became bankrupt the options were nil as were the underlying shares.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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frances April 17, 2009 at 2:20 am

Hi. Appreciate very much for your help in advance.

My case is a little different. My employer granted to me some stock options. I excercised the options mid 2008 when the stock price was up high. While as the company’s financial performance went down sharply due to the financial crisis, the stock price went down. I sold the company’s stocks end of 2008 at a much lower price than the price of the date of option excercise. Can I file a employment benefit as shown on my T4 then claim an business investment loss? Many Thanks!

Tax Guy April 17, 2009 at 3:23 pm

A business investment loss (BIL) is capital loss resulting from the sale
of shares or debt of a “small business corporation” and the allowable
business investment loss (ABIL) is 50% of the BIL and is included in

A small business corporation (SBC) is a Canadian Controlled Private
Corporation (CCPC) in which all or substantially all (meaning 90% or
more) of the corporations assets are employed in an active business
carried on primarily in Canada. In addition, to be considered an active
business, the corporation’s income is not derived from rent, dividends,
interest, or royalties.

If the business meets the requirements of a SBC, then you may be able to
claim an allowable investment loss against all income. The amount would
be 50% of the difference between the price you paid for the shares and
the amount you received.

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