Stocks, Bonds etc. -> Investing Tax Issues -> Warrants and rights to acquire shares
Tax Treatment of Warrants and Rights to Purchase Additional Shares
Income Tax Act s. 15(1), s. 49
This information is regarding warrants or rights (options) which are received outside of RRSPs or other registered accounts.
When a corporation grants, to existing owners of its common shares, rights to acquire additional shares of the corporation, in the form of a warrant or option, the following tax consequences result:
 | the value of the options must be included in the shareholder's income, unless identical rights to acquire shares have been offered to all owners of the corporation's common shares |
| the amount included in the shareholder's income becomes the cost basis of the rights for the shareholder |
The amount of the benefit under s. 15(1) is normally the greater of:
| the trading value of the rights received; and |
| the amount by which the fair market value of the shares subject to the option, at the time of the option's distribution, exceeds the exercise price provided in the option. |
Rights expired
If the rights expire without being exercised, the holder of the option is considered to have disposed of the option for no proceeds of disposition. This results in a loss equal to the cost basis of the rights.
Rights exercised
If the rights are exercised to purchase shares, the cost basis of the shares acquired will be equal to:
| the cost basis of the rights; plus |
| the amount paid to exercise the rights and acquire the shares |
Rights sold
If the rights are sold without being exercised, there will be a gain in the amount of:
| proceeds received, less |
| the cost basis of the rights |
Capital or Income?
For most taxpayers, the gain or loss will be a capital gain or loss, 50% of which is subject to tax. See the article Capital or Income? as to whether the gain is taxable as a capital gain or an income gain.
Canada Revenue Agency (CRA) Resources
IT116R3 Rights to Buy Additional Shares (Archived)
Revised: October 26, 2023