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My company is offering me share options. I'm trying to understand what the tax implications are.

My understanding is that as soon as I convert the options into shares, I must pay tax because the amount I will pay for the shares will be less than they are actually worth.

I'm being told that I need to register a trust and give the shares to the trust. I'm not understanding how this is supposed to help, because first I will need to convert the options into shares, pay the tax, and then give the shares to the trust.

Where is my understanding incorrect?

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  • 2
    "I'm being told" by who exactly?
    – littleadv
    Commented Jul 28, 2023 at 16:28
  • Friends who have trusts
    – Anton
    Commented Jul 29, 2023 at 15:49
  • "Friends" are rarely an authoritative source. Here's a lawyer: rosentaxlaw.com/the-taxation-of-trusts-in-canada
    – littleadv
    Commented Jul 29, 2023 at 15:57
  • 1
    You can ask your "friends" to point exactly to where the type of their trust is discussed in either of these two places.
    – littleadv
    Commented Jul 29, 2023 at 15:58
  • 2
    @DJClayworth few hundred thousand dollars. Though it's all funny money until it's not.
    – Anton
    Commented Aug 12, 2023 at 13:55

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If the amount in question is a few hundred thousand dollars, then a trust may well be a good option. For lesser amounts then one of the other Canadian tax-free schemes is likely to be preferable, but none of them can handle hundreds of thousands of dollars.

Trusts work by separating you from the ownership of the money - you give it to the trust, the trust owns the money. Because you don't own the money you don't pay tax on it. There are complications however. Trusts have to be set up for a specific purpose, and the purpose can't just be "give it back to me". Usually it has to go to a different person. Also you may or may not be able to avoid the tax on the actual allocation of options to you.

There are plenty of websites that describe the basic mechanics of a trust. However for this amount of money you should definitely consult a professional. A few hundred dollars is going to be nothing compared with the amount of money you might save. If you do set up a trust you will need a professional to set it up for you anyway.

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