Wealth Strategies: Federal Changes to Stock Option Taxation Forging Ahead

Federal Changes to Stock Option Taxation Forging Ahead

The Federal Government had tabled changes to stock option taxation in our recent budget, but have since confirmed that they are coming as of 2020. Specifically, these are proposed changes to employee stock options that are taxed at a preferential rate.

This change proposes an annual limit of $200,000 be imposed for certain companies on employee stock option grants that can be taxed at the capital gains rate, beginning with options granted as of January 1, 2020 (based on the fair market value of the shares). These new rules, however, would not apply to CCPC’s (Canadian controlled private corporations) and potentially others, i.e. start-ups that would be subject to certain conditions.

The Federal government has noted that these changes are specifically targeting executives at large firms that are compensated with stock options that have been taxed at preferential rates. Their rationale is to offer the deduction for growing companies such as CCPC’s, and would also align with tax treatment of comparable large firms in the US.

Stakeholders can submit comments on the proposed changes for the industry consultation available up until September 16th. This will allow time to iron out additional details and release the prescribed conditions in advance of implementation on January 1st, 2020.