Tagged: Tax consequences

Tax

Share Buyback Transactions: U.S. Tax Consequences may differ for each U.S. Shareholder

On Thursday, November 4, 2021, the Office of the Superintendent of Financial Institutions announced that, subject to approval by the superintendent, Canadian banks and other financial institutions may begin repurchasing their own shares. Share buyback transactions by Canadian companies are not novel. However, the U.S. federal income tax treatment of U.S. shareholders participating in a share buyback transaction with a Canadian corporation can often be surprising. Depending on the U.S. shareholder’s particular circumstances, the tendering of shares of a Canadian corporation for cash pursuant to a share buyback transaction will generally either be treated as a “sale or exchange” of such U.S. shareholder’s shares or as a “distribution” by the Canadian corporation in...

Benefits / Securities / Tax

Unexpected Risks of Early Exercise Incentive Stock Options

Canadian companies and their outside counsel occasionally ask about the ability to grant early exercise incentive stock options (“ISOs”) to limit the impact of the U.S. alternative minimum tax (“AMT”) to their U.S. employees. However, due to fairly counterintuitive U.S. federal tax regulations, structuring options in this manner may expose optionees to negative tax consequences in the event of a disqualifying disposition (defined below). This post reviews the tax effects of early exercise ISOs and compares the tax results to alternative structures. Early Exercise ISO Tax Consequences With any early exercise option, the optionee is permitted to initially exercise their entire stock option by paying the full option exercise price, but will receive...