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Again maybe this is a US vs Canada thing but in the US, capital gains and losses apply to the *difference* between basis price (what the stock was valued at when the company gave it to you) and sale price. You only get the illustrated scenario if the stock the company gives you has a nominal FMV of ~$0, and you go on to sell it for $1M.

Aside--this is part of why startup options occasionally bankrupt employees! You can wind up owing huge tax bills on grants of illiquid or worthless stock.