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Stock options for employees in Canada

Equity incentives are an invaluable way to attract, motivate, and retain top talent for your business. But when you cross hiring borders, they can become deeply complex.

Remote enables you to easily offer non-qualified stock options (NSOs) to your team members in Canada. There are no compliance headaches or administrative hassles — just simplicity and clarity for you and your people at every step.

What are NSOs?

NSOs are a type of equity incentive. They give your team members the right to buy a set number of shares in your company at a fixed price, known as the exercise price.

This typically happens after a vesting period, which is often based on the length of time your team member stays at your company. As a result, they are a great way to foster long-term commitment, and align people with your company’s strategic goals.

Who can receive NSOs in Canada?

Direct employees EOR employees Contractors
Can receive NSOs? Yes Yes Yes
Difficulty score Easy Easy Easy

It’s important to note that granting stock options to contractors can potentially increase your misclassification risk in Canada (although this is not the primary factor). There are still some inconsistencies in the views expressed by the Canadian revenue authorities, so personal tax advice is highly recommended. See how Remote protects you against misclassification.

How are NSOs taxed in Canada?

In Canada, NSOs are taxed in the following ways:

Direct employees EOR employees Contractors
At grant There is no taxation at grant. There is no taxation at grant. There are still some inconsistencies in certain tax cases and in the views expressed by the Canadian revenue authorities, but there should be no taxation.
At exercise The spread is taxed as salary income. This is the difference between the fair market value of the shares at the time of exercise, and the exercise price (or “strike” price) paid by your team member. The spread is taxed as salary income. This is the difference between the fair market value of the shares at the time of exercise, and the exercise price (or “strike” price) paid by your team member. The spread is taxed as salary income. This is the difference between the fair market value of the shares at the time of exercise, and the exercise price (or “strike” price) paid by your team member.
At sale The gain is taxed as capital gains. The gain is taxed as capital gains. The gain is taxed as capital gains.

Are there tax advantages for your team members?

Direct employees EOR employees Contractors
There is no tax-favored scheme (in the sense of a separate type of equity incentive), but there are tax advantages available at exercise which can reduce the taxation of the spread by 50%. There is no tax-favored scheme (in the sense of a separate type of equity incentive), but there are tax advantages available at exercise which can reduce the taxation of the spread by 50%. There are tax advantages for stock options in Canada, but they do not currently apply to contractors.

Is your business eligible?

If you want to use Remote Equity Advanced to offer stock options to your Canada-based team members, your top corporation (i.e., your parent company) must be incorporated in Delaware. Your company must also be private — not publicly listed.