T4 Code 38 — Security option benefits

Taxable benefit from exercising employee stock options — full amount in Box 14; may pair with deductions in Code 39 or 41.

At a glance — Code 38

Box name: Security option benefits
T1 line: Not reported on T1 directly
Check against: Your option exercise confirmation: (FMV at exercise − strike price) × shares, adjusted for any shares sold for withholding.

What Code 38 means

Code 38 reports the stock option benefit on exercise — fair market value of shares at exercise minus the strike price you paid. It is fully taxable employment income, included in Box 14.

Canadian-Controlled Private Corporation (CCPC) employees do not recognise the benefit at exercise — it falls into the year they dispose of the shares. The CCPC-specific one-half deduction is paragraph 110(1)(d.1), reported under Code 41, and it requires that you dealt at arm's length with the corporation and held the shares at least two years. A CCPC employee whose option separately meets the paragraph 110(1)(d) conditions claims under Code 39 instead — the two deductions are never claimed on the same benefit.

Public-company employees recognize the benefit at exercise. Budget 2024 proposed cutting the deduction to one third above a $250,000 annual threshold, but the government announced it would not proceed, so the deduction remains one half under both paragraph 110(1)(d) (Code 39) and paragraph 110(1)(d.1) (Code 41).

The limit that does apply to paragraph 110(1)(d) is the $200,000 annual vesting cap, which applies to options granted on or after 1 July 2021 by employers that are not CCPCs and whose group revenue exceeds $500 million. Options above that cap do not qualify for the deduction at all; they are simply taxed in full as employment income.

Tax return implications

Already in Box 14 — do not add separately.
Pair with Code 39 (paragraph 110(1)(d)) or Code 41 (paragraph 110(1)(d.1)) on Line 24900. Both are one half of the benefit, so a qualifying option is effectively taxed on half its spread.
Codes 91 and 92 carry the same one-half deductions but exist only on slips filed for the 2024 and 2025 calendar years; for any other year the amounts belong in Code 39 and Code 41.
If shares are sold on the same day (cashless exercise), watch for a small capital gain/loss from the spread between FMV used for benefit and actual sale price.

FAQ

Why does my T4 show both Code 38 and Code 39?

Code 38 is the taxable benefit (full amount added to income). Code 39 is a matching deduction — 50% of the benefit — that you claim on Line 24900 so you are effectively taxed on half the benefit. The two together approximate capital-gains-like treatment for qualifying options.

Related T4 boxes

Code 30 — Board and lodging

Taxable value of employer-provided meals and accommodation — already included in Box 14 via Box 40.

Code 31 — Special work site (board & lodging exempted)

Value of board and lodging at a qualifying special work site — reported for reference, not taxable.

Code 32 — Travel in a prescribed zone

Employer-paid travel benefits for workers in Northern or Intermediate prescribed zones — needed to claim the Northern Residents travel deduction.

Code 34 — Personal use of employer's automobile

Taxable benefit from a company vehicle — standby charge + operating benefit — already included in Box 14.

Filing your return? Use the payroll deductions calculator to verify the amounts on your T4 match expected CPP, EI and income tax withholdings, and the income tax calculator to estimate your refund or balance owing.

Sources

T4 box definitions from CRA T4 employer guide. Rates and thresholds current for 2025; file your 2025 T1 by April 30, 2026 (self-employed June 15).

T4 Code 38 — Security option benefits

At a glance — Code 38

What Code 38 means

Tax return implications

FAQ

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