This is how I know it as the tax consequences of exercising options.

Public Company

The granting of the options is not a tax event. When exercised, it becomes a tax event as a taxable benefit for the difference between the exercise price and market price at that time. Since it is a benefit, it is income taxed at your regular tax rate. If you sell the shares immediately, this is your tax liability. If you hold the shares and they increase in value, you will also have a capital gain from the market price used in the benefit calculation to the sale price. If the share value tanks, you still owe tax for the benefit at regular rates and then capital loss down to the sale price as the market price used for the benefit calculation has become your ACB. You can however receive a 50% tax deduction on the benefit if you meet all three of the following conditions which would reduce this benefit tax rate to equal to capital gains rate. 

1. You receive normal common shares upon exercise
2. The exercise price is at least equal to the fair market value of the shares at the time the options were granted
3. You deal at arm’s length or on a third party basis with your employer

I might be wrong but I would guess that No. 3 would have the corporation insiders failing to qualify for this deduction.

Private Company

Granting options is not a tax event. When they are exercised, the difference between the market value and exercise price becomes a benefit taxable at regular rates. If you are an employee of the corporation, you can defer the tax until you sell the shares. If you are not an employee, it is an immediate tax event. You can claim a 50% deduction on the benefit if you meet one of the following condition.

• You have held the shares for at least two years after you have purchased them
• The exercise price is at least equal to the fair market value of the shares when they were granted to you

ACB for capital gains calculation would become the market value used to calculate your benefit above.