Stock Options & Non-Related Capital Losses

by Tax Guy - Burlington Accountant on December 18, 2008 Print This Post Print This Post

Question: “I have taken advantage of Stock Options over the past several years. This year I expect to incur significant capital losses unrelated to my stock option plan. Can I carry these losses back 3 years (and forward indefinitely) and claim them against the stock options gains that have been included in my taxable income.”

The general rule related to capital loss carryovers is that capital losses realized in the current tax year must be applied first to capital gains realized in the current tax year.  Any net capital losses may then be either carried back and applied to capital gains in the prior three years or carried forward indefinitely.

There is no requirement that the properties be the same only that they be capital properties.  This if the exercise of the stock options would have been normally treated as a capital gain, then any capital losses on the same shares or other shares or other capital properties may be claimed against other capital gains.

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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Hany December 22, 2008 at 8:40 pm

I have the same situation however my stock option exercise last year was reported on my T4 as regular income which I can’t understand. Is it possible for a company to consider stock option exercise as normal income or is it a mistake and should go back and have them correct it?


Tax Admin December 29, 2008 at 10:31 am

A stock option plan is a plan where a corporation grants an employee the right to purchase shares in the corporation at a specified price. The granting of options receives preferred treatment. The general rule is that you are considered to have received a taxable benefit from employment when the options are exercised and the benefit is the difference between the price you actually paid and the value of the shares when the options were exercised.

Your adjusted cost base is the value of the shares acquired is the value (not the actual price paid) when the options were exercised.

The preferential treatment is in the form of a partial deduction if certain conditions are met: (1) The shares must be normal common shares, (2) the exercised price must be no less than the market value at the time the options were granted, and (3) you or your family members must not be related to anyone controlling the corporation.

Therefore you should receive a T4 for the full value of the benefit and you would qualify for the offsetting deduction if the other conditions are met.

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