The Canada Revenue Agency (CRA) confirmed, during the June 15, 2022 STEP roundtable, that the s. 110(1)(d) deduction (50 per cent of the amount of the stock option taxable benefit in the year) can now apply to stock option benefits realized on death, provided that all the following conditions are met:
- A qualifying person agreed to sell or issue the employee shares of its capital stock or the capital stock of another corporation that it does not deal with at arm's length, or agreed to sell or issue units of a mutual fund trust.
- The employee dealt at arm's length with these qualifying persons right after the agreement was made.
- If the security is a share, it is a prescribed share (as defined in Income Tax Regulations), and if it is a unit, it is a unit of a mutual fund trust.
- The share or unit price was not less than its fair market value when the agreement was made.
- There are additional conditions where an employee receives cash instead of acquiring securities and the security options are granted on or after July 1, 2021.
More details on stock options deduction are available here.