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 can defer the benefit until the shares are actually sold (instead of at exercise), and may qualify for the full 50% stock-option deduction on Code 39.

Public-company employees recognize the benefit at exercise. OBBBA-equivalent Canadian changes mean that after June 25, 2024, only the first $250,000 of annual stock-option benefit qualifies for the 50% deduction (Code 39); the excess over $250k may only claim a 33⅓% deduction (Code 41).

Tax return implications

Already in Box 14 — do not add separately.
Pair with Code 39 (50% deduction) or Code 41 (33⅓% OBBBA-era deduction) on Line 24900 to offset 50% or 33⅓% of the benefit.
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).