dating coach men chicago - Backdating canada
Another piece is the insider reporting obligations imposed upon some executives by securities regulations. Given a lenient disclosure regime for reporting the grant and exercise of stock options, as some have argued currently exists in Canada, backdating could easily go undetected.
Greed is often cited as the motive for backdated options. However, while greed could account for a desire for higher compensation, it cannot account for the form that such compensation takes. The exemption amount begins to be phased out when AMTI exceeds a threshold (0,000 for a married individual filing a joint return; 2,500 for a single individual). The deferral of the income inclusion for an ISO is an adjustment in computing AMTI, resulting in the addition to regular taxable income in the tax year in which the option is exercised of an amount equal to the difference between the fair market value of the shares and the exercise price of the option.
As executives could lawfully be paid equivalent amounts in cash (or properly dated options), it does not seem likely that greed is, at least by itself, a primary motivator for backdating.
We therefore focus on the value at exercise (and eventual sale of the shares) and demonstrate the role the income tax regime plays in determining the after-tax value to the executive. The long-term capital gains rate remains applicable for AMT purposes; in other words, the reduced rate is not treated as a tax preference for AMT purposes.
This article considers in detail the potential role of personal income taxation in influencing demand for backdated options in Canada relative to the United States.
The first step in untangling the causes of backdating is to acknowledge that the backdating phenomenon must be driven by both supply and demand factors. Lipman, Incentive Stock Options and the Alternative Minimum Tax: The Worst of Time, 39 Harv. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub.
From the supply side, the question is what motivates a firm to grant a backdated option, and from the demand side, what motivates an executive to demand (or, at the very least, accept) a backdated option?
This paper contrasts the post-tax returns of backdated at-the-money options to currently-dated in-the-money options (with the same strike price as the backdated options) and demonstrates that a Canadian executive can earn a significantly larger after-tax return from backdated options compared to a US executive.
We tie this to the favorable Canadian tax treatment of executive options relative to their treatment in the United States.
While understanding the propensity to backdate undoubtedly requires insight on the supply side factors to backdating (as it is the firms that ultimately grant executive stock options), without demand there would be no supply.
Therefore understanding the drivers that influence demand is critical to understanding the whole story behind backdating of executive stock options.
Second, upon the sale of the stock acquired pursuant to the option, the difference between the proceeds of disposition of the stock and the fair market value of the stock on the date the option is exercised is taxed as a capital gain or capital loss, as the case may be. One exception concerns stock options granted by a Canadian-controlled private corporation (“CCPC”). To be precise, the AMT imposed is the amount by which the tentative minimum tax liability exceeds the regular tax liability. The tentative minimum tax liability is calculated by recomputing regular tax liability, first by adding back to taxable income tax preference items and by making certain adjustments in order to determine the alternative minimum taxable income (“AMTI”), then by applying the appropriate AMT rate to the amount by which AMTI exceeds the taxpayer’s exemption amount.