The tax implications of employee stock options were discussed in Chapter 4. A taxable benefit arises when the FMV of the shares at the time the option is exercised, exceeds the exercise price. This taxable benefit is employment income either in the year the option is exercised or the underlying shares are sold. To ensure that the taxpayer is not taxed twice on this benefit, the section 7 taxable benefit is added to the cost of the shares in determining the ACB of the shares.