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Canada has a good rule for this: There's a special class of company called Canadian-Controlled Private Corporation (CCPC). When exercising options issued by a CCPC, the tax burden is deferred until disposition.

https://www.collinsbarrow.com/en/cbn/publications/taxation-o...

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And the company going belly up (or an acquisition scenario where common shares are worth zip) is a disposition that will make the tax due.

You can however use the Allowable Business Investment Loss deduction to deduct half, and if you hold the CCPC shares for two years, you can deduct the other half. So the danger zone is the two year window after exercising.

Erroneous comment referring to legacy tax rules. I've edited it away for clarity.

The CCPC status is grandfathered in if your options were granted when the company was a CCPC.

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