Withholding payroll deductions on options

The Pensionable and insurable earnings review (PIER) program checks security options reported as a non-cash taxable benefit. If this type of benefit is the only amount reported on a T4 slip, see the reporting instructions in order to avoid receiving a PIER report deficiency.

Payroll Deductions

Cash outs

Deduct CPP Contribution, EI premiums and income tax.

For more information, go to Cash-outs.

Options

Security options are considered a non-cash benefit, so they are not insurable. In all cases do not deduct EI premiums. There is no CPP contribution or no income tax withholding requirement where a taxable benefit is received by an arms-length employee with respect to the disposition of Canadian-controlled private corporation shares (CCPC).

In all other cases where a taxable benefit is received, the employer is required to withhold and remit an amount in respect of the taxable security option benefit (excluding any security option deduction) to the same extent as if the amount of the benefit had been paid as an employee bonus.

For more information, go to Security options or see Chapter 6 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances. Deduct CPP contributions and income tax.

When determining the amount of the security option benefit subject to income tax withholding, the CRA will permit the employer to reduce the benefit by 50% using the Security options deduction under paragraph 110(1)(d).