T4 Code 39 — Security options deduction (50%) — §110(1)(d)
Deduction equal to 50% of the Code 38 stock-option benefit for qualifying options — claimed on Line 24900.
At a glance — Code 39
- Box name
- Security options deduction (50%) — §110(1)(d)
- T1 line
- Line 24900 — Security options deduction
- Check against
- One half of the code 38 benefit, unless the $200,000 annual vesting limit applied to some of your options.
What Code 39 means
Code 39 is the security options deduction under paragraph 110(1)(d) of the Income Tax Act: one half of the stock option benefit reported under code 38. Its effect is that a qualifying option benefit is taxed at roughly the rate a capital gain would attract, even though the benefit itself is employment income.
Where code 39 appears, code 38 must appear as well, because the deduction cannot exist without the benefit it halves. Code 39 itself is never included in box 14, since it is a deduction rather than income.
The deduction requires all of a set of conditions to be met. A qualifying person agreed to sell or issue you shares of its capital stock or units of a mutual fund trust, you dealt at arm's length with that person right after the agreement was made, a share must be a prescribed share, and the exercise price was not less than the fair market value of the security when the agreement was made. Where the benefit came from a cash-out, your employer must have elected under subsection 110(1.1) not to claim the payment as an expense, which they report under code 86, so that only one of you takes the deduction.
A separate deduction, also one half, exists under paragraph 110(1)(d.1) for shares of a Canadian-controlled private corporation that you held for at least two years before disposing of them and for which you did not claim under 110(1)(d). That deduction is reported under code 41, not code 39, and you cannot use both for the same benefit.
Tax return implications
- Claim the amount at line 24900. It reduces taxable income; it does not reduce the employment income reported at line 10100.
- The $200,000 annual vesting limit applies only where the issuer is a non-CCPC or mutual fund trust that, alone or as part of a consolidated group, has revenues of more than $500 million, and only to options granted on or after July 1, 2021.
- The vesting limit is measured on the fair market value of the securities when the option was granted, for the year in which the options first became exercisable. Options above the limit are non-qualified securities and attract no deduction under 110(1)(d).
- Where you donate the acquired security to a qualified donee within 30 days of exercising the option and in the same year, a further deduction may be available under paragraph 110(1)(d.01).
- Benefits realized on securities reported by the employer on Form T2SCH59, Information Return for Non-Qualified Securities, are not reported under code 39.
Common pitfalls & things to check
- The proposed reduction of the deduction from one half to one third, announced to take effect June 25, 2024, was cancelled. The Government announced on March 21, 2025 that it will not proceed, so the deduction remains one half under both paragraph 110(1)(d) and paragraph 110(1)(d.1).
- Some 2024 slips still show a deduction calculated at 33.3333%, which was permitted under a CRA administrative policy for options exercised from June 25 to December 31, 2024. Where that happened, the balance is claimed at line 24901, additional security options deduction, to bring the total up to one half.
- An exercise price set below the fair market value at the date of the agreement disqualifies the option from the 110(1)(d) deduction entirely. The code 38 benefit is then taxed in full with no offsetting code 39.
- Code 39 is a deduction, not income. Adding it to box 14 or to your employment income is a common and expensive data-entry error.
- Options from more than one employer are each tested separately against the conditions, and the $200,000 vesting limit is applied by reference to the qualifying person, so amounts on slips from different issuers do not simply add together.
FAQ
Is the stock option deduction still 50%?
Yes. Legislation proposed in 2024 would have reduced it to one third from June 25, 2024, but the Government announced on March 21, 2025 that it will not proceed. The deduction under paragraphs 110(1)(d) and 110(1)(d.1) remains one half.
My 2024 slip shows about a third, not a half. What do I do?
That was allowed under a CRA administrative policy for options exercised between June 25 and December 31, 2024. You claim the difference at line 24901 so that your total deduction reaches one half.
What is the difference between code 39 and code 41?
Code 39 is the deduction under paragraph 110(1)(d), which turns on the terms of the option when the agreement was made. Code 41 is the deduction under paragraph 110(1)(d.1), for CCPC shares held at least two years. Both are one half, and only one can be used for a given benefit.
Why is there no code 39 on my slip?
The most common reason is that the option failed one of the 110(1)(d) conditions, usually an exercise price below the fair market value at the date of the agreement. The benefit in code 38 is then taxable in full.
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).
Related Calculators
Take-home pay
Net pay after federal, provincial, CPP and EI deductions
Federal + provincial income tax
Combined tax on your income by province
CPP & EI premiums
CPP1, CPP2 and Employment Insurance for 2026
Federal public service pay
AS-01 to AS-07 salary with pension, CPP/QPP and EI
All Canadian tax calculators
Browse every catax.tools calculator